HASBRO, INC. Q3 FY2024 earnings call

• Games and licensing outperformed, expanding operating profit margin for the third consecutive quarter. - Magic: The Gathering led the trading card genre in growth year-to-date, with Bloomburrow and Duskmourn driving growth, and Arena seeing solid growth. D&D's updated Player’s Handbook was the fastest selling product in D&D’s 50-year history, and D&D Beyond drove direct-to-consumer revenue to 60% with 19 million registered users. - Licensing was a bright spot: Monopoly Go! generated approximately $10 million in licensing revenue per month, Scopely innovating with new formats; Furreal Friends and Littlest Pet Shop out-licensed brands showed over 50% year-over-year POS growth; My Little Pony had a resurgence through international partnerships. - Consumer Products: Toy revenue softness was due to selling less closeout volume for higher profitability, with action figures soft but bullish for long-term; Beyblade X launched with POS accelerating; Play-Doh had its best back-to-school ever; the Board Game portfolio was strong. - Supply chain team delivered productivity wins, inventory at multi-year lows, down 40% year-over-year, and the global brand and commercial teams in the CP Segment were to come together under one organization.

Total Hasbro revenue in Q3 was $1.3 billion, down 15% year-over-year. Excluding the eOne divestiture, total revenue was down 9%. The Wizards segment declined 5% in the quarter, with Magic: The Gathering growing 3% behind releases like Bloomburrow and Duskmourn. Consumer Products revenue declined 10%, driven by exited brands, reduced close-outs, and softer volume. Entertainment segment declined 86% due to the eOne divestiture; excluding this impact, it decreased 17%. Year-to-date, total Hasbro revenue was approximately $3 billion, down 18% year-over-year. Excluding eOne, revenue was down 8%. Year-to-date adjusted operating profit was $726 million, with an adjusted operating margin of 23.9%, up approximately 10 points year-over-year. For the Wizards segment, revenue declined 5%, with Magic growing 3% and operating margin for Wizards finishing at 44.9%, down about three points versus last year. For Consumer Products, Q3 revenue declined 10%, but adjusted operating margin was 15.1%, up 3.9 points compared to last year, driven by a more profitable licensing mix, supply chain productivity, fewer closeouts, and reduced expenses.

Total Wizards Revenue is now expected to be flat to down 1%, up from prior guidance of down 1% to 3% due to year-to-date outperformance. Consumer Products revenue is now expected to be down 12% to 14%, compared to prior guidance of down 7% to 11% due to the Q3 shortfall and reduced closeout volume. Adjusted EBITDA guidance remains unchanged in the range of $975 million to $1.025 billion. 2024 ending cash is expected to be above year-end 2023 levels. Wizards operating margin is expected to be approximately 42%, and Consumer Products adjusted operating margin guidance is 4% to 6%. Entertainment, excluding the eOne divestiture, is expected to have revenue down approximately $15 million versus last year and an adjusted operating margin of roughly 60%. Target $750 million of gross cost savings by 2025, with $200 million to $250 million of net cost savings in 2024, and $240 million of gross cost savings and $177 million of net savings achieved year-to-date.

• Demand forecasting inaccuracies due to the company's disciplined inventory management. - Supply chain agility challenges as the company continues to upgrade processes and systems to ensure adequate supply of desired products.

Q: Drew Crum asked about reconciling Monopoly Go! download data with Hasbro's expectations and the impact of the web store launch.

A: Chris Cocks and Gina Goetter responded that Hasbro sees healthy UA rates, moderated decay rate, and the $10 million monthly royalty revenue cadence is reasonable, with Tycoon Club potentially increasing revenue.

Q: Megan Alexander inquired about the Consumer Products guide change and POS.

A: Gina Goetter explained the guide change was due to closeout volume, Star Wars softness, and execution issues, with POS not materially changing outlook.

Q: Christopher Horvers asked about exited brands impact on the CP outlook.

A: Gina Goetter said exited brands impacted CP in Q3 and Q4 similarly, with less impact next year.

Q: Eric Handler asked about Baldur’s Gate 3 legs and Magic outlook.

A: Chris Cocks said Larian will manage Baldur’s Gate 3 similarly to Divinity, and Magic will outperform in 2025.

Q: Alex Perry asked about the Wizard of the Coast 4Q guide and margin step-down.

A: Gina Goetter and Chris Cocks explained it was due to Magic set timing and volume deleverage.

Q: Arpine Kocharyan asked about full-year operating profit margin and cost savings split.

A: Gina Goetter said Q4 margin drag was from mix and deleverage, and cost savings split to be 50-50 next year.

Q: Sean Rooney asked about retail sentiment and cost savings.

A: Chris Cocks and Gina Goetter said retail sentiment was unchanged, and cost savings ~60% from supply chain this year.

Q: Kylie Cohu asked about the Scopely relationship and Marvel Magic drop.

A: Chris Cocks discussed Scopely partnership and Marvel Magic drop details.