The operator welcomes listeners to the Hasbro First Quarter 2024 Earnings Conference Call and introduces the speakers, Kern Kapoor, Chris Cocks, and Gina Goetter. The speakers will provide commentary on the company's performance and then take questions. The earnings release and presentation slides are available on the Investor website, and the call will discuss adjusted measures. A reconciliation of GAAP to non-GAAP measures is included. The speakers may make forward-looking statements, and there are factors that could cause actual results to differ from expectations. The company will not update any forward-looking statements made during the call.

Chris Cocks, CEO of Hasbro, talks about the company's strategy to focus on play and their success in the first quarter of 2024. Revenue and margins have exceeded expectations, and the company is on track for sustainable growth. Highlights include the success of Monopoly Go! and Baldur's Gate 3, as well as new partnerships and licensing agreements for the Dungeons & Dragons franchise.

Hasbro's success in licensing and partnerships is evident in their recent collaborations with Basic Fun, Playmates, and Paramount. Their asset-light entertainment model has already proven profitable, with upcoming projects such as the Transformers film and partnerships with Lionsgate, Margot Robbie's production company, and the CW. Hasbro is also expanding their reach through partner-led properties and attractions, such as Hasbro City in Mexico. This success is a result of their focus on innovation and operational excellence.

In the games category, the company is making changes to their portfolio to gain more market share and focus on growth categories such as party, strategy, and card games. They recently launched new games such as Life in Reterra and Fork Milk Kidnap, and are also focusing on being the leader in certain areas, such as with the release of the Monopoly Prism NBA Board Game. Magic the Gathering saw growth in Q1 and has a strong lineup of collaborations planned for the future. The company is also working on improving their toy business, with inventories at multi-year lows and a significant reduction in closeout volume in Q1.

The company is doing well with their retail partners and is focused on new product innovation, such as Beyblade, Nerf, and Baby Alive. They are also seeing success with their digital marketing efforts and have had strong sales with Furby and Transformers. Their partnerships with retailers and licensing with companies like Disney are important to the company. They have recently added new members to their Board of Directors with experience in games and retail operations.

The speaker thanks retiring board members and honors Alan Hassenfeld, who will continue to be involved with Hasbro's philanthropic efforts. They recap the successful quarter, with wins in digital licensing, board games, and Furby. The company's turnaround efforts in consumer products are going well and they will continue to monitor progress. The speaker then hands over the call to Gina, who shares more detailed results and guidance for the year. They are pleased with how they executed their strategy in the first quarter, with strength in digital licensing and Magic contributing to a more profitable business mix. They also made progress in reducing operating expenses and see more room for cost reduction in the future.

The company has implemented a design-to-value strategy and has seen significant savings as a result. Their toy inventory levels are at a healthy level and they expect them to remain relatively flat throughout the year. This has led to a reduction in closeout sales and improved profitability. The company is also focusing on improving marketing efficacy and investing in profitable revenue opportunities. In Q1, total revenue was down 24%, but only 9% if the impact of the E1 divestiture is excluded.

In the first quarter, Hasbro saw a 7% growth in their Wizards of the Coast segment, driven by Magic and licensed digital games, as well as a 65% growth in entertainment thanks to a renewal deal for Peppa Pig. However, this was offset by a 21% decline in consumer products due to category declines and reduced volume. Despite this, the company was still able to deliver significant margin improvement and reported a net earnings of $85 million. The company also saw growth in their Wizards of the Coast and digital gaming segment, driven by ongoing digital licensing contributions and strong reception to their latest set releases.

The operating margin for this segment increased by 13 points due to supply chain productivity, cost savings, and growth in digital licensing. Consumer product revenue declined by 21%, mainly due to market softness and inventory cleanup efforts. The volume decline was expected and resulted in a more disciplined approach to discounting, which is expected to benefit profitability. The recent launch of Fur Blitz and success in Play-Doh and Hasbro Gaming were bright spots, but there was continued softness in the blaster and action figure categories. The operating margin for consumer products decreased by two margin points, mainly due to de-leverage from the volume decline, but gross margins still grew by over five margin points.

The company is pleased with their progress in Q1 but will continue to monitor their progress in Q2 before potentially revising their outlook for the full year. They are reaffirming their initial guidance, which calls for a decline in total Wizards revenue but an increase in operating margin. Revenue for Consumer Products will also decline, but this is partly due to actions taken to improve profitability. The company expects a similar decline in Q2 and growth in Q4 due to innovation, marketing, and healthy retail inventory levels.

The company expects to see profitability improve throughout the year, driven by increased volume and cost savings. Entertainment revenue will be down due to divestiture, but operating margin will increase significantly. The company remains on track to achieve $750 million in cost savings by 2025 and is on pace to deliver $200-250 million in net cost savings in 2024. The company expects total EBITDA to be in the range of $925 million to $1 billion, driven by cost savings and the lap of nonrecurring charges. Cash levels will be slightly down due to flat inventory, increased capital project spending, and restructuring costs. The company's priorities for capital allocation are to invest in the core business, return cash to shareholders, and pay down debt. Overall, the company is pleased with its first quarter performance and is focused on driving a shift in its games and licensing business, fixing its toy business, and lowering costs.

The speaker thanks the questioner and asks for help in refining guidance for EPS. They state that analysts are close to their internal math and mention a $0.10 favorability from a stock adjustment. The speaker then addresses another question about Magic Arena, stating that it was down in Q1 due to not lapping a remastered set. They mention continued investment in the platform and plans to refresh it over the next couple of years. They also mention growth in social-based play and collectability for Magic.

The speaker is responding to a question about the company's operating margin and profit performance in the first quarter. They clarify that the 20% operating margin target for the full year may not be achievable due to certain one-time adjustments in the corporate segment. However, they highlight the healthy margin performance at the start of the year and mention the impact of supply chain performance.

The speaker discusses their team's goal to make their supply chain the most competitive and mentions an acceleration in benefits, but notes that there are still uncertainties that need to be addressed before committing to a 20% increase. They also mention a decline in consumer product sales in the first quarter due to reduced closeouts and not lapping previous releases, but have seen positive trends in point-of-sale and Easter sales in March and April. However, they are monitoring a relatively light slate of entertainment in the second quarter compared to the previous year.

The company is taking a cautious approach and monitoring their performance due to potential challenges in the entertainment industry. However, they have seen an improvement in their return on advertising spend and may revise their guidance at the end of Q2. The reduction in inventory from last year will have a positive impact on margins, but revenue will still be impacted. The Consumer Products business saw a decline in adjusted operating income and margin compression, but this is expected to improve in Q3 and return to growth in Q4.

In the second quarter, there will still be a material decline in sales due to product delays, but it will stabilize in the third quarter. Margins are expected to grow, especially in the fourth quarter due to a one-time margin boost. The performance of Fallout Commander has been strong and it is the best-performing Commander set ever. However, Commander sets are smaller compared to overall premier sets. Engagement in Magic is at pre-pandemic levels and the outlook for Final Fantasy and Marvel sets next year is positive, with Marvel expected to be a significant set due to its popularity as an IP.

The speaker clarifies that the industry retail trends were down for the quarter, but they are still monitoring the situation as it is early in the year. The highlight of the results is the margin, which is expected to continue throughout the year. The speaker mentions that Q2 will have strong Wizard and the easing impact of closeout sales, and they are also looking at other factors for the back half of the year.

Chris Cocks and Gina Goetter discuss Hasbro's Q1 results, attributing them to their strategic focus on games, IP, and toys. They expect this trend to continue throughout the year, with a healthy games business, strong IP, and cost efficiencies driving margins. They also mention that supply chain productivity will offset inflation and operating expenses will continue to decrease. The only quarter that may see a slight dip is Q3 due to exceptionally strong results in the previous year.

The paragraph discusses the upcoming launch of Baldur's Gate 3 and the success of Monopoly Go!. The speakers mention that digital sales have been flat, but there could be upside potential due to positive trends and other factors. They explain that it is too early to raise guidance, but they are monitoring the situation closely. The corporate line item for the quarter was $45 million, with half of it being stock compensation and the other half being due to the operational excellence program. The latter is a timing issue and represents real money.

The company is experiencing cost savings and expects to allocate back the favorability to its two segments. The nonrepeating portion of the savings is about $0.10 per share. If current revenue trends and advertising spend continue, the company could exceed its minimum guarantee within Q2 for Monopoly Go!.

The company's marketing strategy in the first quarter has been successful, primarily due to increased spending on digital media and retail partnerships. This has resulted in improved effectiveness, and if it continues, the majority of the success will contribute to topline growth. The company also expects cost efficiencies and supply chain improvements to positively impact bottom line results. The company is also closely monitoring the freight market in light of recent disruptions in the Middle East, which could potentially impact margins in the future.

The company provided detailed information on the expected performance of its CP segment in the second quarter, including the impact of factors such as the Red Sea on its business. They also mentioned that the environment for freight is more rational and that they have negotiated rates and contracts to benefit their P&L. The company also highlighted their competitive advantage in terms of their profit pools being nearshore and less affected by traditional freight lanes. Finally, the company was asked about their expectations for Wizards in the second quarter in terms of revenue and operating margin.

In the second quarter, Wizards is expected to have a strong top and bottom line due to their release schedule and shift towards digital. Both CP and Whatsee will benefit from operating expenses. There will also be a royalty benefit for Magic, but there are no major quarter-over-quarter shifts for the rest of the year. Q1 saw a shift of Outlaws of Thunder Junction, but Q4 may have a lighter release schedule. The company wishes the caller good luck.

In the first quarter, the company had $45 million in expenses, but this number is expected to decrease for the rest of the year due to timing and stock compensation adjustments. The company's corporate costs are included in this number, but they are allocated back throughout the year. The full year number is expected to be around $20-30 million, with fluctuations of a few million in each quarter. The consumer products margin was negative in the first quarter, but the company is optimistic about its future trajectory.

Gina Goetter, the speaker, believes that the company is on track to meet their 4% to 6% guidance range for this year, despite a drag in Q1. They are focused on improving profitability through cost structure, supply chain, product mix, and product design. They expect to see a material positive benefit on the P&L in Q4 and into 2025. The analyst, James Hardiman, asks if it is possible for the company to reach a double-digit margin in the second half or fourth quarter, to which Gina responds that it is possible due to a large inventory adjustment from last year.

The speaker, Frederick Wightman from Wolfe Research, asks about the company's margins and cost inflation. Gina Goetter, the company representative, explains that they are seeing a couple points of inflation in labor and purchasing ingredients. Chris Cocks, another representative, clarifies that they are managing logistics well and seeing productivity gains. Wightman also asks about the company's licensing deals, specifically the success of the Littlest Pet Shop and Power Rangers brands. Cocks responds that the early success of these deals may impact their future decisions to own or license certain brands.

In an interview, Chris Cocks discusses the company's decision to outsource certain lines and the criteria they used to make that decision. He also mentions their plans for cross-licensing and leveraging their brands for new opportunities. He notes that Power Rangers is likely the last brand they will outsource. Regarding the impact of Easter on the quarter, Cocks estimates a modest lift of 1-2 points, but also mentions positive trends in April without factoring in the holiday.

The speaker asks about the company's exposure to China and is reminded that about 40% of their total volume is built in China, but only 5-10% of their total profit is sourced from there. The call concludes after the Q&A session.

This summary was generated with AI and may contain some inaccuracies.