Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hasbro Inc (HAS, Financial) reported strong profit margins, with operating profit margin expanding for the third consecutive quarter.
- Magic: The Gathering continues to lead the trading card genre, showing growth despite tough comparisons from last year's releases.
- Licensing revenue, particularly from MONOPOLY Go, is generating approximately $10 million per month, showcasing the strength of Hasbro's IP licensing strategy.
- The company's strategic shift towards games, digital, and IP licensing is paying off, with improved profitability and cash flow expected in 2024 and beyond.
- Hasbro Inc (HAS) has successfully reduced inventory levels, achieving the healthiest inventory position in seven years, which benefits gross margins.
Negative Points
- Consumer products revenue came in lighter than anticipated, leading to a lowered full-year revenue guidance for this segment.
- There was a significant decline in action figures, particularly Star Wars, impacting overall revenue.
- The entertainment segment saw an 86% decline due to the E1 divestiture, affecting total revenue.
- Despite improvements, the company is still facing challenges in stabilizing the consumer products business, with revenue expected to decline 12% to 14% for the year.
- The fourth quarter is expected to see a pronounced year-over-year decline in revenue due to the timing of Magic: The Gathering releases and other factors.
Q & A Highlights
Q: Can you provide more details on the performance and future expectations for MONOPOLY Go, especially regarding user acquisition and revenue?
A: Chris Cocks, CEO, explained that the implied guidance of $10 million per month in royalty revenue considers various factors such as gross revenue, rev share with stores, and user acquisition (UA) spend. They see healthy UA rates and strong engagement, which supports a steady revenue stream. Gina Goetter, CFO, added that the decay rate stabilized, and marketing spend was at the higher end of the 25%-35% range, aligning with their guidance of $105 million for the year.
Q: What led to the change in the Consumer Products guidance, and how does it relate to POS expectations?
A: Gina Goetter, CFO, stated that the guidance change reflects a $100 million revenue impact, with half due to reduced closeout volumes and 30%-40% related to entertainment brands like Star Wars. Execution issues in inventory management also contributed. Despite these factors, planned POS hasn't materially changed, and they expect non-discounted toy volume to be flat to up in Q4.
Q: How do you view the long-term potential of MONOPOLY Go, and what are the expectations for 2025?
A: Christoph Hilpert from JPMorgan Chase asked about the game's longevity. Chris Cocks, CEO, responded that MONOPOLY Go is expected to be flat to up in 2025 compared to 2024, with an additional quarter of revenue next year as they surpass minimum guarantees.
Q: Can you elaborate on the impact of exited brands on Consumer Products revenue and the outlook for 2025?
A: Gina Goetter, CFO, noted that exited brands accounted for about $20-$25 million in Q3 and a similar amount in Q4. By 2025, the impact should be minimal as they transition to recognizing royalties from these outsourced brands, which are growing healthily.
Q: What are your expectations for the holiday season, and which brands are you most excited about?
A: Chris Cocks, CEO, anticipates the toy industry to be down modestly in Q4. He expressed excitement about brands like Play-Doh, Beyblade, Transformers, Marvel, and their board game portfolio. Gina Goetter, CFO, added that retail sentiment remains positive, with strong support from partners.
Q: How do you plan to maintain momentum for Baldur's Gate 3, and what is the outlook for Magic: The Gathering?
A: Chris Cocks, CEO, mentioned that Larian Studios, the game's developer, is expected to manage Baldur's Gate 3 similarly to their Divinity franchise, with ongoing community engagement and content updates. For Magic: The Gathering, despite a Q4 decline due to set timing, the brand is expected to perform well in 2025 with new collaborations and releases.
Q: Can you discuss the cost savings opportunities for next year and the expected split between cost of goods and OpEx savings?
A: Gina Goetter, CFO, stated that about 60% of this year's savings came from the supply chain, with the rest from managed expenses. Next year, they expect a 50/50 split, with continued supply chain improvements and the introduction of design-to-value savings.
Q: What is the future of your relationship with Scopely, and how do you view their innovation capabilities?
A: Chris Cocks, CEO, praised Scopely as a strong partner in mobile gaming, highlighting their expertise and capital requirements. He noted their innovative events in MONOPOLY Go and potential for future collaborations across Hasbro's IP portfolio.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
