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Q & A Highlights

Q: Can you discuss the Consumer Products top line guidance, excluding the headwinds from NERF and Transformers, and your expectations for industry POS and market share performance? A: We anticipate the toy industry to be around flat, plus or minus 1%, for this year. Trading cards and building blocks are likely the main drivers, while other categories may see low single-digit declines. We feel positive about our entertainment slate and preschool initiatives, which will be announced at Toy Fair. Our focus on sub-$10 and sub-$20 price points should also strengthen our position. Despite challenges with Star Wars and NERF, we expect our licensing segments to remain profitable.

Q: Regarding the medium-term guidance, is the 50 to 100 basis points of margin expansion per year cumulative or annual? How do self-publishing video games factor into your margin expansion goals? A: The margin expansion is cumulative, aiming for a 150 to 300 basis point increase over three years. As for video games, while they will boost revenue and profit, the capitalization of development costs will impact margins. However, we expect overall profitability and cash flow to improve.

Q: Could you elaborate on the impact of tariffs on your guidance and how they are distributed across different markets? A: Our guidance incorporates the February 1 announcement regarding tariffs, primarily focusing on China, as we source minimally from Canada and Mexico. We are leveraging our supply chain strength and potential pricing strategies to mitigate these impacts.

Q: How does the new strategy reflect Hasbro's direction, and are there any significant product or partnership developments that influenced your formal outlook? A: Our strategy articulates our ongoing focus on gaming and licensing, alongside our strong toy portfolio. We are excited about expanding into more oriented categories and emerging markets. Our digital ambitions set us apart from traditional toy companies, and our licensing business is a significant margin driver.

Q: Can you provide more details on the incremental cost savings and the differences between the $750 million and $1 billion targets? A: To date, about half of our $600 million in gross savings has come from supply chain efficiencies. Moving forward, we expect additional savings from gross-to-net improvements, design-to-value initiatives, and managed expenses as we transform our operations.

Q: What is the expected cadence for video game releases, and how do you balance in-house versus outsourced development? Is M&A a consideration for studio acquisitions? A: We plan to release one to two games annually from 2026 to 2030, while continuing to expand our licensing portfolio. We are exploring joint ventures and partnerships, such as our collaboration with Sabre Interactive, to leverage industry talent and unlock our IP.

Q: How do you evaluate which brands to out-license versus keep in-house, especially considering structural changes in demand for brands like NERF? A: We categorize brands into growth, optimized, and reinvent segments. For NERF, we aim to reinvent by focusing on safe active play beyond darts. Licensing remains an option, but our bias is towards brand creation. Our partners have successfully expanded our brands into new categories.

Q: Can you discuss the drivers of digital gaming strength in Q4, particularly MONOPOLY GO and other portfolio areas? A: MONOPOLY GO continues to perform well, driven by its engaging gameplay and effective marketing. We expect it to generate around $10 million monthly. Baldur's Gate 3 also exceeded expectations, benefiting from strong community engagement and word-of-mouth promotion.

Q: What are the main factors influencing the midterm margin expansion, and how do you rank them? A: The key drivers include increased licensing revenue, cost savings, and digital gaming growth. The timing of video game monetization will significantly impact margins, with cost savings and licensing providing steady contributions.

Q: How does the Easter timing shift affect the Consumer Products division's Q1 outlook, and what drives the expected acceleration throughout the year? A: The Q1 decline is primarily due to the Easter timing shift. As the year progresses, we anticipate improvements driven by new product launches, entertainment slate benefits, and continued cost management.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.