Hasbro, Inc. (HAS) Earnings Call Transcript & Summary

Hello, everyone, and thank you very much for that warm welcome. I'm not sure whether you're thanking me for visiting the stage or applauding your snacks or indeed the previous presenters. But either way, I'll take it. So it's good to see you all, and thanks very much for coming back on time. You've heard this morning actually from Chris, Eric and the team about our Blueprint 2.0 strategy. And well, I just need to introduce myself. I'm Matt Austin, I'm the new Chief Commercial Officer of about 3 months or so, joined Hasbro around 3 years ago. And I'm going to introduce my fellow panelists in a second. So firstly, I'd like to introduce Shane Azzi, who's also our newest member of the team, joining us as a Chief Supply Chain Officer. Shane, welcome; Kwamina Crankson, GM and SVP of Hasbro Direct; and finally, Kathrin Belliveau, who is our Chief Purpose Officer. Kathrin. So as I said, I'm pretty new to Hasbro. So I'm going to tee up this little panel and talk a little bit about the commercial markets we have out there around the world. And my own personal view when I joined the business a couple of years back was that the depth and breadth of our portfolio is truly industry-leading. And we have world-class brands that reach across the consumer spectrum exciting and entertaining everyone from kids to families to fans as we know. Brands like Peppa Pig, MONOPOLY, MAGIC: THE GATHERING, Transformers, PLAY-DOH and Avalon Hill are just a few examples as you heard, of the brands capable of leading the categories around the world where we choose to play. And if you take the U.S. as an example, our brand reach is incredibly impressive. We have leadership positions in categories that reach over 67% of American households across a very large diverse society mix, and we see this absolutely as a competitive advantage. Focusing on fewer, bigger, better brands only amplifies the opportunity we have ahead of us. Across the G10, the 4 categories in which Hasbro was the leader in 2021 represent a total addressable market of $26 billion, which we currently only hold at 12% share. We believe, in fact, we know that we have significant headroom for growth, and our plans are designed to exploit this. Our reinvigorated focus on these fewer, bigger and better brands enabled us to create more fans all over the world. And let me tell you 3 ways which we're planning to do this: firstly, we're optimizing our geographic portfolio. Increasing focus and investment on key scale markets as well as ensuring we have the right teams, the infrastructure and the capabilities in place to drive our markets. We also know these markets have the highest potential for future growth. So that's where we focus. Let's talk about China. Just as an example. As we speak, our teams are currently pivoting our go-to-market model, and we're focusing on Hasbro Direct and marketplaces and obviously Hasbro Pulse to enable us to eventually -- efficiently reach potential 96% of Chinese consumers at a lower cost. This unlocks the headroom for growth in that market of an estimated $13 billion. This is indicative of how we will involve our routes to market around the world, enabling us to affect -- efficiently reach our consumers like never before, leveraging our e-com capabilities, distributor partners as well as our new planned B2B platform. Secondly, we'll be taking our relationships with our customers to the next level. Our drive will be our -- sorry, our drive will be our customers' key partner of choice. It will be a key enabler in our transformative growth and will be an ongoing process of ruthless focus and continuous improvement. Our partner of choice focus has seen us make significant recent investments in world-class talent, research and analytics, as Eric mentioned. And of course, combined with our new category management skills and capabilities. This will enhance our knowledge of consumers and shoppers and we'll share this compelling insight with our retailer partners. Simply put, we will leverage the depth and breadth of the Hasbro portfolio together with unique insights to ensure that Hasbro is the indispensable source of category knowledge for our online and offline retailers. Our new perfect store and screen initiative is the executional arm of these strategic insights. We will invest heavily in evaluating and improving our in-store execution with the sole purpose of increasing the conversion of our customer shoppers and, of course, our consumers. We'll take our visual merchandising to the next level, ensuring that Hasbro brands are presented with the industrial impact that they deserve, both offline and offline. Thirdly, and at a market level, we will seamlessly integrate all the aspects of the Hasbro Consumer Products that you've heard about today, so that the consumer benefits from a true brand experience regardless of how they choose to interact with our brands. We look across holistically across the consumer, looking at toys, games, location-based entertainment and licensed consumer products. So I'm now going to turn you over to Kwamina, who leads our Hasbro Direct business, and it's highly appropriate that I do so. I consider myself, well, at least my credit card bill at the end of the month, considers myself to be the leading Hasbro Pulse consumer in the world. Happy to compete with anybody in the room, by the way. So Kwamina, can just talk to us a little bit more about Hasbro Direct.

Thank you, Matt. Yes, we are focused on the incredible opportunity in the $1 billion adult fan economy. We're on the path to create the destination where you'll be able to get everything you want from Hasbro. We have an incredible portfolio of brands, and we've been building on the success and the engagement that we have through Hasbro Pulse. Coming from a FanField weekend, celebrating our third annual elevated virtual event PulseCon, we were able to showcase and sell the latest products across all our brands. We're committed to these moments, and we're fan focused on delivering these experiences. Now our growth plan is to continue building the infrastructure and developing the capability and the capacity to serve our consumers through 1 platform and 1 shared unique ID. This will enable us to create scalable efficiencies with 1 platform serving as a hub with rich interactions and critical consumer touch points. This will enable us to know our fans deeper across the whole ecosystem and deliver unique experiences, products and services. Our D2C business is less than 2 years old, and we're accelerating from hundreds of millions to a growth path to $1 billion. We started serving fans predominantly in North America. This year's focus was to bring our service across Europe, opening to fans in Germany, France, Italy, Spain and many more. Our fans and communities have been patient and vocal. So we're focused on accelerating and delivering a breadth and depth through global expansion. This is a direct response to the demand we see in those markets and the goal of serving globally over the next 24 months. Our members are a central part of our confidence for growth. Across Hasbro, we have millions of members who engage and we serve and our goal is to create the valuable relationship that's lifelong. Within Pulse, the members reward us by returning 12x a year with an average spend of over $1,000. By connecting our fans across our Blueprint, we can deliver more what they want directly. Next year, D&D and Transformers will give us many opportunities to deliver to our fans across the Blueprint. Now we remain fan obsessed and focused on building dream items and differentiated experiences. Our crowd fund HasLabs allow us to bring to market consumer-backed concepts. And if they fund it, we make it. Now recently, the G.I. Joe HISS tank funded in record time. And Marvel Ghostrider, and Avalon Hill strategy game, Heroscape, a live campaigns that we look forward to bringing and seeing them back and funded and delivered to them. Now taking a dream idea that are making it real continues to be why we've launched our personalization platform, Selfie Series. It's building the end-to-end capability to scan an image of you and turn into a toy for a 6-inch hero figure, and let's you put yourself on your shelf. And this innovative one-to-one custom personalized product, some of it just launched, but I want you to see what fans feel. [Presentation]

Just [indiscernible] weeks before we launched, we took the opportunity to give access to fans out there, even at Emmys. They're able to select their own character and use this incredible innovation, and we know it's live now on the Hasbro Pulse app. The fan future is bright and the incredible entertainment ahead. We're just excited to celebrate and bring rich stories to life and deliver innovative new experiences, whether you are the fan of the brand, stories or characters, we'll have ways for you to engage.

Thanks, Kwamina. Really insightful there about Hasbro Direct business. And in case you haven't noticed, and I don't -- and I think most of you have seen it, you can actually get your own Selfie Series 6-inch action figure made and preorder today just outside this room. And if you're sitting there thinking, why should I do that? I'd turn that on its head and say, why not? It's a 6-inch action figure of yourself. Your only challenge will be to -- you actually have to queue behind me, and I'm British. And as you know, we make queuing a national sport. So I'm now going to turn it over to Shane, our newest member of the Hasbro leadership team. He's going to talk to you some of the operational excellence and the transformation we're making across that business.

Well, thanks, Matt, and good morning to everyone. I'm busy kind of getting pink Power Rangers ready. So back to that video, I'm sure that's where I'm going to be working next. So as Matt mentioned, I joined the team back in May, and it's been a pretty hectic time in supply chain anywhere around the world in the last few years. So it's been really good to join the Hasbro team and exciting time to be here and really good to take the opportunity to get into a deep review of our supply chain. And we're really committed to building a supply chain that really builds competitive advantage for this company. So we've undertaken this deep diagnostic to really understand, benchmark our performance across all elements of the supply chain to see where the value is. We've established a supply chain transformation office, as you've heard as part of the Hasbro Transformation Office to really embed and drive the initiatives through. We've accomplished a lot in a short amount of time, actually. We've added some key talent to our team, and we're simplifying our supply chain. From this, we have tremendous insights on the opportunity that will enable us to better service the evolving needs of both our customers and our consumers while generating significant savings. You've heard today about the Brand Insights Platform and the focus on building a robust analytics platform at Hasbro. This extends to the supply chain, where we're continuing to invest in both technology and capabilities to have the right products available at the right time and place to serve our consumers. We will leverage analytics across the supply chain to bring enhanced visibility and predictability to our operations that will enable greater responsiveness and strengthen our overall resiliency. This will enable us to reduce inventories from historical levels, not just from this year and improve our product availability of our consumers in any channel we serve. Network optimization is also another significant area of opportunity across our supply chain. To unlock this, we're undertaking a detailed analysis and redesign to determine the optimal network for both our fulfillment center locations for both efficiency and customer reach. This work is being integrated with our inventory strategies to enable accurate product deployment to bring the lowest cost to serve and drive availability to support key initiatives such as Matt mentioned, with perfect store. We are also rolling out a focused productivity program to drive efficiency in transportation and our fulfillment centers to improve flow and enable automation. We're also enhancing capabilities around direct-to-consumer. And as you heard from Kwamina today, it's a significant area. So we've got very focused consumer operations and focused network strategies in this area. We also continue to evolve our sourcing footprint to better service our global customers and support the growth, but also to minimize risk. We have made significant progress in developing high levels of resiliency across our supply network through the course of this year to enable consistent and reliable product flow, including forward purchasing on key components such as electronics to ensure we have great product availability. We're undertaking a deep strategic review across our supply network to ensure we have the optimal supply network to leverage both cost, quality, but also innovation, responsiveness and resiliency. And as an example, we've expanded our footprint into Mexico. We've increased the volume going through our existing operations there, and we've also launched our new Selfies range from our new facility in Mexico. So while much of this is work in progress and its early days, we've made tremendous strides, and we have seen improved stability and performance across our entire supply network through the course of this year, which is enabling us to deliver much higher service levels and stronger product availability. We are very confident that our supply chain transformation will deliver the key capabilities that will enable Hasbro to have the right products available to our customers at the right time and at the right place along with significant savings to fuel our growth.

Thanks, Shane. And I think I can't underscore how important this infrastructure development is. You've heard this morning about reaching more and more consumers, well, this infrastructure is going to enable us to do that. So 3 years ago, I joined Hasbro, and 1 of the reasons why I did that, there were many on my ad. But 1 of the reasons I did that was because of our strong sense of purpose and how we put that at the heart of our business, both across our brands and of course, our people. So Kathrin talk a little bit more about this purpose.

Sure. Thank you so much, and it's great to be here. Good morning, everyone. As Matt said, purpose is really part of who we are at Hasbro has been part of our legacy for the last 100 years. And as we undertake Blueprint 2.0 and the plans that the teams have outlined with all of you this morning, we do so with a clear sense of purpose. Again, it's been part of our legacy and core to our culture, creating joy and community is a really special calling. And today, our purpose strategy is stronger and more relevant than ever. We know consumers expect brands like Hasbro to embrace citizenship. And we know employees around the world, particularly coming out of COVID are looking to work for purpose-driven organizations. And at Hasbro, again, fundamentally, we believe as a management team in purpose is the right thing for our people, our planet and our business. It's a key pillar in the way we drive profit, grow our business and attract top talent like Matt. And if we think about sort of top talent and our people, next slide, we know from folks like Matt and our employees around the world. When they talk about why they joined Hasbro, it's our incredible brands, but it's also because of who we are as a corporate citizen and they understand that we, as a company, are committed to doing the right thing. Purpose also informs our decision-making as a company and as a management team, including navigating recent global challenges, whether the pandemic or heightened geopolitical tensions in regions around the world or needs of our teams locally and our communities. And as we think about environment, social and governance, which I know is a very popular termed coin ESG today. For us, it's really part of the daily delivery system for our purpose and driving cost efficiency, employee engagement and ultimately, long-term value creation. So I wanted to share just a few highlights specifically about our progress and how it actually drives long-term value creation. And you can find a lot of details, a lot of data in our upcoming ESG report playing with purpose, which will be on the Hasbro website by the beginning of November. So I encourage all of you to take a look because it's a very rich -- an engaging report. So first, if we think about supply chain responsibility, and Shane has shared with you all of the incredible work that he's doing to drive efficiencies. Our teams are really partnering together because at the end of the day, as a company, we believe in the Hasbro ecosystem, we have responsibility not just for our direct workforce and our people and our communities, but also for the workers in our supply chain. So some of the programs that we've been initiating over the last few years include worker well-being programs where we launched with our factory partners, and they've been incredibly rewarding and impactful. And just to give you a sense, they include everything from personal financial training to female health, parenting and family programs. And from this, we have seen specific impact. We've seen worker productivity increase. We have seen reduced turnover and absenteeism in the vendor factories, we have seen an overall strengthening of supply relationships and reliability. And interestingly, factory management says much of what we've seen at Hasbro, which is they have become employers of choice because of these programs. So the value add there has been tremendous, and we look forward to continuing to partner with Shane and his team. And then secondly, climate and sustainability. It's top of mind for all of us at the company. We couldn't be more excited as an organization, as a management team to be setting bold goals. We are looking forward to announcing carbon footprint reduction goals, and I'll give you a speak peek as to what they are. But I can tell you that we've been working across our vendor factories with our logistics providers across our gaming and digital gaming business, our owned operated facilities to become more energy efficient and also reduce our use of materials. So earlier this year, we joined the science-based target initiative, and we did this to ensure the credibility, viability and rigor of our approach in setting greenhouse gas emissions across all scopes. This is a very big endeavor, and we wanted to make sure we were doing it absolutely perfectly. So with the science-based target initiative, we will be setting and announcing, hopefully, by next year, a 2030 goal to reduce our greenhouse gas emissions, again, across our entire global business, every element of our business by 42%. So we are incredibly excited about that. And we'll also be setting a net zero goal by 2050. And again, we'll be announcing those formally next year. And then finally, we're also putting in place a climate risk and resilience framework in place to ensure we're managing the risks, including our supply chain and across our entire global business, mitigating the risks of severe weather events, which we know are becoming more frequent. And then I just wanted to conclude with a couple of advancements in terms of what we've been doing directly with consumers. One of the things we've been hearing from our consumers and the insights from our fans and all of the data analytics that we've talked about this morning, is that our consumers are saying specifically with our consumer products that they want less packaging. And I think we all know as consumers ourselves, we all want less packaging as well. So we announced in 2018 a goal to eliminate single-use plastic in our packaging by the end of 2022. And we are on track -- I'm thrilled to announce we are on track to do so. I think it goes without saying our sustainability, packaging, designers and engineers are among the best in the business to have effectuated this change. We will reduce not only the use of packaging and plastic in our packaging but also greenhouse gas emissions will be reduced as well as cost savings. Next, our toy recycling program, which is another initiative that we initiated in 2018 also based on insights from consumers. We knew that our consumers wanted a way to take their well-used, well-loved toys and games and turn them into a second use and second life. And so our toy recycling program was launched. It's been an industry-leading industry first. In 2018, we announced it in the United States as a pilot program, and it's been so successful that it's been launched now in 12 countries in North America, South America, in Europe. And so how it works is our consumers, free of cost to them, can take their well-loved toys and games, and we accept all products that come back. They ship them to our recycling partner. The toys are then broken down into components, which are converted into resins and pellets. And then we've designated them for use in play spaces like playgrounds and parks. So with this, we've joined hands with our consumers and we've created this wonderful circle of play. So with that, I want to thank everyone for your attention today. We're proud to be leading the industry, the recycling is 1 example where we have started an industry trend. And now our toy peers have similar programs in place. Our vision ultimately is this will become a trend in a worldwide industry program that does good for the world as well as meet consumer needs. So I think this morning. I hope we have shared with you how we believe in ESG as a way to drive long-term strategic growth. We're scaling our impacts. And at the end of the day, everything that we're talking about, and I know Shane talked about his supply chain initiatives and Kwamina, the fan engagement as well as our opportunities with customers, we are building an incredible strategic advantage for Hasbro. So I'm going to hand it back to Matt to wrap the panel. Thanks, Matt.

Thanks, Kathrin. And a big thank you to Kwamina and Shane as well. So hopefully, what you just heard from us is how we're laying to reach and convert even more consumers around the world with more engagement, operational efficiency and focus than ever before. You've heard from me how we'll evolve our go-to-market strategies, increasing our partnership capabilities with our customers and taking our in-store and online execution to the next level. Kwamina talked how we'll leverage our Hasbro digital direct model led by our flagship Pulse program, increasing our global and category footprint and our ability to engage and delight fans all over the world. And Shane talked us through how we'll take -- will step change our supply chain, delivering our powerful brands and products to our consumers and consumers -- customers and consumers when and where they expect at a significantly lower cost than today. And finally and perhaps most importantly, Kathrin talked us through how we'll lead our purpose will remain at the center of our business and how we're going to leverage this to generate and continue to generate a true competitive advantage. So that's it from us. Thank you very much for listening. I'm pleased to say I'm about to introduce our Chief Financial Officer, Deb Thomas, I remember, honestly promise you. So over to you, Deb. Thank you very much.

Thank you, Matt and team. I appreciate that promotion, I think. But thank you to everyone who's here today, who has presented our great plan and to all the employees who are back in all of our global offices and many of whom are listening in today. But hopefully, you've heard about our plan to deliver long-term profitable growth and unlock shareholder value. So as you've heard, we have a plan built on the Hasbro Blueprint 2.0 that through 2027 delivers a mid-single-digit compound annual growth rate that sets us up to achieve $8.5 billion or greater in revenue; operating profit growth of 50% over the next 3 years; and expanded operating profit margin to 20% by 2027. And it generates operating cash flow of $1 billion or greater, annually accelerating over the period. This is underpinned by a plan for operational excellence, which we expect to deliver $250 million to $300 million in run rate cost savings by 2025. We'll invest to grow our business, and we're committed to maintaining our investment-grade rating and returning our excess cash to our shareholders. Our outlook for 2022 was built on the expectation that the macro environment will become more challenging. Inflation is impacting consumers globally. The toy and game industry growth would slow, and our innovation portfolio was Q4 weighted. The loss of revenue from Russia, our fighter entertainment calendar were additional challenges, and I think we can all agree, foreign exchange headwinds have since worsened. As we outlined for you in July, the third quarter remains the most challenging. And we expect revenue to decline approximately 15% year-over-year and approximately 12% in constant currency, with operating profit impacted more significantly due to the mix of revenue being different than last year, particularly in setting our consumer product line associated with Q4 entertainment, much of what we saw today, our high-margin gaming, Wizards of the Coast and entertainment deliveries such as My Little Pony, which launched in the third quarter of last year. And these are all the things that we outlined at our Q2 earnings. So we expect full year revenue to be flat to slightly down in constant currency or 4% to 5% at projected actual rates, and we're maintaining our adjusted operating profit margin guidance of 16% for 2022. We'll begin to see the impact of Blueprint 2.0 this year. The innovation we're delivering in the fourth quarter, entertainment arriving late this year and continuing at an unprecedented pace in 2023, the disciplined investments we're making, for the future and our plan for operational excellence, are setting us up for a strong 2023 and beyond. Chris, Eric and the teams laid out how our focus on the consumer, combined with investing in gaming as a priority, reaching the consumer and being informed through a direct strategy, divesting or licensing nonstrategic assets and prioritizing fewer brands as well as being focused on operational excellence will allow us to meet these targets. Now let's walk through our financial plan to achieve these goals. Gaming. Gaming is a significant driver of our top line revenue target. To achieve this, we have a plan to double the Wizards of the Coast and Digital Gaming segment revenue from 2021's $1.29 billion. Our significant investments in Magic: The Gathering, Dungeons & Dragons, and digital gaming drive a planned high single to low double-digit revenue segment CAGR over the next 3 years through 2024 and a mid- to high-teen CAGR in the latter years as we begin to see the benefits of our investments in digital gaming. By 2027, we're targeting close to 40% of the segment's revenues in digital, both developed in-house and through high-margin license partnerships. The Consumer Products segment, it's planned to deliver $1 billion in additional top line revenue and a low single-digit CAGR through 2024 as we concentrate on growing only those brands with high-margin potential and a mid-single-digit CAGR from 2025 through 2027. This plan reflects our focus on fewer brands and a shift to higher-margin initiatives. We'll license out the brands that don't meet our financially disciplined investment goals for internal development. So this will trade off the P&L impact in revenue and cost by monetizing underperforming in dormant assets at a higher margin return, which will drive consumer spending. As Eric and the teams outlined, we have clear plans to gain share in the categories in which we execute best and focus less on categories that deliver below threshold returns, and we want to pursue high revenue through licensing. Finally, entertainment. Entertainment will be an increasingly valuable tool in building Hasbro IP. Guided by Blueprint 2.0, we'll focus on spending behind Hasbro IP and higher return projects, and we'll strategically divest assets which are not core to our strategy, such as we did with 2021's Music division. We'll align our content spend across animation and live action to drive low single-digit compound annual growth rate for revenue through 2027. This revenue growth results in high single-digit profit increases as we focus on higher return projects. These projects will be increasingly around Hasbro brands, and around those brands, they'll drive return and revenue in all of our other segments. As Chris mentioned, over the last 10 years, entertainment has driven over $4 billion in related merchandise sales for Hasbro. We'll begin to see our greater focus on Blueprint supported content from our teams at E1 in 2023 with the release of Dungeons & Dragons movie among other Hasbro properties. We expect to grow our cash spend on Hasbro content 2x across all mediums in the next 2 years, driving both short- and long-term storytelling around our owned IP. Total targeted spending is expected to be at the low end of our $725 million to $825 million range for 2022, and it's expected to be in the $650 million to $725 million range go forward. To support this targeted growth, we've reprioritized our brand architecture and applied stringent criteria to the classifications. So let's turn now to how our brand categories and how they sit within our different segments. So first, franchise brands remain our top priority. Beginning in 2023 in the first quarter, we'll report a new group of franchise brands, which meet our updated priorities for profitable growth. These include Magic: The Gathering; Dungeons & Dragons; Hasbro Gaming, which includes Monopoly; NERF, the Queen of Preschool; Peppa Pig; Play-Doh and Transformers. This group of brands has averaged approximately 55% of our total revenue for the past 2 years and carries a combined mid-20% operating profit margin. We updated our criteria for defining a franchise brand to support the significant investment in these properties over time. A franchise brand must have a plan to reach $500 million or greater in revenue by 2027 and a 20% operating profit margin target. As you heard today, our goal is to have 3 $1 billion brands, and they will come from this category. We'll also look to enter into more co-brand arrangements, which we feel and when we feel that our partner's IP will create revenue synergies with our own brands, in particular, franchise brands. So a good example of this partnership, when I was pretty excited about Cynthia spoke about earlier, is the partnership with Lord of the Rings and Magic: The Gathering. So it's leveraging the strong fan base of both of these IPs, and it's driving growth in both of these strong symbiotic brands. As Cynthia also mentioned, we're expanding this aggressively for Magic with new partnerships planned with Final Fantasy and Assassin's Creed, along with one I'm particularly excited about our just released Warhammer 40k theme set. So revenue from these partnerships will follow the primary Hasbro brand category. Partner Brands remain a high priority, reflecting the long-term and deep partnerships we have with amazing IP owners, including the Walt Disney Company for Marvel, Star Wars and, beginning next year, Indiana Jones. As Eric outlined, we're poised to support a superior entertainment lineup in the coming year on top of what's turning out to be a strong 2022 for Hasbro products for Marvel and Star Wars, including the upcoming Q4 Marvel Studios' Black Panther: Wakanda Forever. Margins in the Partner Brand portfolio will improve as we cycle out of brands and categories that return a lower than target profit margin. And we grow our collector's segment through initiatives like Kwamina talked about and Hasbro Pulse. And then portfolio brands. That will include our remaining brands. Within this valuable portfolio, we're focused on driving revenue in the best way that maximizes profit and consumer reach. We'll increasingly license out properties that don't meet a minimum annual revenue threshold and an operating profit margin target of at least 15%. Our current plans have identified approximately $200 million to $250 million of revenue that we're moving to third-party licensing. So we'll trade out the costs associated with this lower revenue and low single-digit OP margin product made in-house for higher-margin license revenues. We'll ensure the investment in the remaining portfolio brands are rightsized to deliver company average or above operating profit and EBITDA margins while assessing their potential to accelerate and become a future franchise brand. Finally, our TV, film and entertainment portfolio reflects the entertainment our independent studio develops with amazing stories and an incredible industry talent. Our brand in entertainment will continue to be reported in the categories where the brand sets. For example, Peppa Pig. Peppa Pig revenues from animation, YouTube and digital gaming are in franchise brands, which is where we reported currently. As I mentioned, we'll begin reporting this brand category breakdown in the first quarter of 2023 and will enhance this disclosure of revenue with the addition of operating profit. We'll also provide historical information at that time. As we invest in and continue to grow our over $2 billion gaming business, we'll continue to provide a total gaming portfolio disclosure for revenue. And to that, we'll also add operating profit. We'll also begin to report revenue associated with any brand that's $1 billion or greater. Magic: The Gathering is on track this year to be our first $1 billion brand, having delivered over $1 billion in revenue over the trailing 12 months. Our strategic review has also uncovered significant opportunity to drive cost savings in our business. Blueprint 2.0 coupled with a disciplined cost savings program has us on a path to achieve the 20% operating profit margin in 2027. Through organizational and supply-chain programs, we've identified $250 million to $300 million in run rate savings we expect to achieve by year-end 2025. On this path to operational excellence, we expect savings will be approximately $75 million to $100 million in cost of sales and distribution led by the work that Shane and his team are doing, approximately $70 million in product development and royalty expense and the balance of $100 million to $130 million in selling and admin. We estimate spending approximately $200 million in cash to implement the program with $20 million spent in 2022, $120 million in '23 and $60 million in 2024. We expect the savings to actualize in the P&L over the next 3 years with approximately $150 million annualized savings by the end of 2023 and $250 million annualized savings by the end of 2024. As we focus on what's working best for our business and shed what doesn't add strategic value for the long term, we may also incur some noncash charges in the next few quarters. As we've begun this program and a disciplined review of our business, we've made the decision to exit certain nonstrategic areas. And as a result, we anticipate recording a restructuring charge of approximately $60 million in the third quarter of 2022, consisting of severance, consulting and write-down on assets being sold or disposed. We anticipate 60% of our savings to come from our consumer products business, where our focus on SKU rationalization, optimizing our geographic footprint, rightsizing our operating expenses behind fewer brands and supply-chain excellence will drive the biggest impact. From a segment profitability standpoint, our focus on fewer brands and cost savings will drive significant gains in our consumer product margins with the plan to build on its low teen operating profit margins with incremental improvement each year to ultimately reach 15% in 2027. The next biggest opportunity is in corporate expenses, where we project approximately 25% of the savings will come from, including greater use of shared services, IT optimization and real estate savings. Wizards and digital gaming and entertainment will drive the balance as we heightened our focus on key initiatives, concentrate cash spend on strategic activities and move more to a shared service environment. Wizards and digital gaming remains a priority investment, and our efforts will be on talent and retention, growing Magic and D&D, and investing and expanding our digital gaming presence. Margins are expected to remain around 40% or slightly higher through the medium term through 2024. In 2025, we anticipate more significant digital gaming launches with a goal of 1 to 2 significant new game launches per year, along with ongoing support of existing live services. This will carry lower margins in the near term, as we depreciate capitalized development costs and incur launch expenses, including player acquisition and advertising. OP margins are expected in the mid- to high 30% range from 2025 through 2027. As this business is projected to grow faster than Hasbro overall, it will continue to increase as a percentage of our revenue mix, positively impacting overall Hasbro top line growth, and operating dollars and margin. Finally, entertainment. Entertainment will have a revitalized emphasis on brand-led storytelling with strategic optimization of the assets within the business. In line with this, we expect to dispose of additional parts of this segment, which are not strategically core to our blueprint. While this will impact expected revenue this year by about $20 million to $25 million and in the coming years by $75 million to $125 million, it will improve profit margins. Our plan is to deliver increased growth in our profit in this segment over time. The entertainment created around Hasbro brands will drive higher margin revenue, not just in this segment but across all aspects of the Hasbro Blueprint. As Steve outlined earlier, we've built the value of this business, and we've brought back our rights to drive high profit merchandise revenue. As you see these results, bear in mind that I mentioned previously, the entertainment revenue associated with franchise brands will appear across segments, not just in entertainment. Revenue received from Dungeons & Dragons: Honor Among Thieves is a great example of this value creation. So our business is highly cash generative as well. This year, we committed cash of over $255 million -- $250 million in the short term to build inventory to meet demand, which we couldn't do last year in the holiday period due to the supply-chain impacts. And as Shane indicated, we're well positioned to do so this year. Additionally, we purchased D&D Beyond for $146 million, and we repurchased $124 million of our shares. So as a result, our cash position is -- for the third quarter and for year-end is forecasted to be slightly below our norm. But we don't expect this to continue. For 2023, $1 billion is the high end of our projected operating cash flow range. But beginning in 2024, we anticipate generating $1 billion plus and accelerating per year in operating cash flow. And our capital priorities are aligned as well to maximizing shareholder value. Our top priority is to invest in profitable growth. This includes high-growth opportunities for gaming, including in digital, investments in direct-to-consumer where we not only sell product, but we gain valuable information on what our consumers want as well as developing a global data insights platform and modernizing our supply chain. We'll also invest in our talent to ensure we have the best teams with the right skill set to execute our strategy. So you heard a lot today about our plans and ambitions in these areas. After investing $1 billion in Wizards of the Coast over the past 5 years, our plan includes continued significant investment in these brands and these teams to drive these valuable businesses. We have capital spending plans of hundreds of millions of dollars over the coming 5 years behind our 6 digital gaming studios that are developing and supporting games for Magic: The Gathering, Dungeons & Dragons, G.I. Joe and new IP that we can execute around the blueprint. Digital gaming has averaged approximately 20% of our capital spend and is forecast to increase to an average of 30% over the next 5 years. This investment is a catalyst for incremental revenue growth in the coming years. Tooling for our product manufacturing has been our largest capital expenditure. And over the past 5 years, it's averaged 56% of our annual capital spend. A focused development strategy aligned behind fewer bigger brands will allow us to better leverage that significant investment. While our focus on the near term is organically driven, M&A could be a contributor in the future. We'll look for potential businesses that add to Hasbro in gaming, digital publishing and direct-to-consumer categories, where we see high growth and accretive profit potential. We'll evaluate these with established criteria, including rapid EPS accretion and an internal rate of return higher than our stand-alone risk-adjusted WACC. D&D Beyond is an excellent example of this type of company and its incredible talent that adds immediate value to our portfolio and will be accretive in the fourth quarter of this year. Due to our consistent financial policy, our aggressive delevering and maintenance of our dividend over the past 3 years, we've delivered on our commitment to bondholders, rating agencies and to our shareholders. We're committed to maintaining our investment-grade rating and anticipate returning to our gross debt-to-EBITDA target of 2 to 2.5x during 2023. And then finally, we'll return our excess cash to shareholders. Our quarterly dividend is currently $0.70 per share and totals approximately $390 million annually. It ranks at the top of the S&P 500, and we remain committed to our current dividend and believe it represents exceptional value to our shareholders, both in terms of earnings payout levels and use of our cash flow. We'll also be looking to increase our share repurchase in future years as we rebuild our cash position. We see tremendous opportunity in our business that is not reflected in our stock price. As I look ahead to the future of Hasbro, it's easy to be excited. It's an exceptional team with a clear plan, an updated blueprint backed by strong financial discipline to drive results in both the short and long term. Through the execution of our plan between now and 2027, we anticipate delivering mid-single-digit revenue CAGR, achieving $8.5 billion or greater in revenue; operating profit growth of 50% over the next 3 years and expanding operating profit margin to 20% by 2027; generating $1 billion or greater annually in operating cash flow and unlocking significant shareholder value. We see that growth starting now with a strong lineup of brand-new innovation in Q4, a games business with continued momentum, especially in Magic: The Gathering, our first $1 billion brand, and a blockbuster entertainment lineup, I can never say that word, by working on Blueprint. Starting with Black Panther: Wakanda Forever, this November. So thank you all for your attention, and we're really looking forward to sharing in the exciting next phase of Hasbro with all of you as we look forward. But before we end, I want to turn back to Chris.

Okay. Thank you, Deb, and thank you to all of today's speakers. But most importantly, thank you to our employees for all they do every day and to everyone who has joined us in person or on the webcast. I think at one point, we had close to 2,000 people on the webcast. So pretty good. Before we move on to the Q&A portion, which is coming up next, I wanted to quickly highlight the 3 points that I made in my opening remarks. If there's anything that I'd like you to take away from today, again, it's these 3 things. First, we see a big opportunity to unlock value at Hasbro with 50% profit growth over the next 3 years, fueled by special emphasis on direct, digital and immersive entertainment experiences, all informed by category-leading investment in data analytics and customer insights. Second, we understand that 2022 has had its challenges, and we can, and we will do better. We are addressing our business with discipline and urgency. We are focusing on the brands and categories with highest growth, and we are behaving like a global branded entertainment IP leader, not just a toy maker, monetizing our brands wherever and however it makes sense supported by rigorous KPIs. And finally, across the business, we have a bold plan for growth that starts now, supported by a category-leading games business, a blockbuster entertainment lineup, exciting product innovation, lucrative new partnerships and the commitment to operational discipline that will drive over $250 million to $300 million of run rate savings over the next 3 years. As I said at the start, I truly believe that Hasbro is a special company with amazing brands, an awesome gaming portfolio, best-in-class teams, like you saw today, and a strong and proven history of play and entertainment innovation. I hope you're as excited as I am for the journey ahead. We're a new team with big ambitions, and we are hungry for the win. I'm incredibly passionate about this company. I even dress up as a Ghostbuster occasionally. As is everyone that you heard from today, we're also very determined to get the job done. And it's that passion and determination which is going to propel Hasbro into our next phase of accelerated growth. So with that, I want to again end by saying thank you. Thank you to the Hasbro management team for working so hard to bring the Hasbro Blueprint 2.0 to life. And thank you to our investors for your trust in us and belief in Hasbro. With that, I'm going to invite Eric Nyman, our President and COO; and Deb Thomas, I think our Chief Commercial Officer, CFO; and Chief HR Officer, up to the stage. So we can move on to Q&A.

So for the Q&A, we have folks with some microphones. All you have to do is just raise your hand and let us know if you would like to ask a question. When you get the microphone, for the folks that are joining us online, it would be great -- and for us on the stage, it would be great if you could state your name and what firm you're with, and then ask your question.

Steph Wissink with Jefferies. I have a 2-part question on revenue. And maybe, Deb, you can answer this one for us. But the first question is just on the 2022 change, if you could help us understand within the segments what changed in the guidance. And then as you look out over the next several years to your goals, does your revenue mid-single-digit CAGR embed the loss of or the takeaway of some of the businesses? I think you gave us $200 million to $250 million of out-licensing. And then another component to the E1. Does that -- is that factored in? Or is that going to be incremental as it happens?

Well, Steph, and thank you and everyone else who was brave enough to sit in the first row. That's always good, to see people who don't sit on the back of the bus first thing. So thanks. I'll take the first part. I'll take the second part of the question, and then I'll turn it over to Deb for the first part and she can add whatever she'd like to the second. We have included the decrement on out-licensing. We've included that in terms of decreasing what our owned and operated is and also what the low single-digit profit margins were in those businesses. And then we've added on what the licensing revenue looks like, and the very high double-digit operating profits associated with that.

Right. So as far as we look at this year and we look at the third quarter in particular, everything that's happening in the third quarter is what we outlined in the second quarter. We've seen a few things shifting into the fourth quarter from the third quarter, and we actually see something shifting from the fourth quarter into 2023. It's not going away, particularly in entertainment, where deliveries drive revenue. And we just see a few things shifting this year. So overall, our segments are -- they're all doing well, and we're terribly excited about 2023 and beyond and the entertainment we have coming in the fourth quarter with our partner, the Walt Disney Company in particular.

Next question.

I have the mic, so I'm up next.

Sorry, I can't see with the lights.

So Jason Haas, Bank of America. I'm curious -- sorry to ask another one about the quarter, but I'm curious, could you provide any color on how this -- or I guess, since its outlook, what the outlook is by segment for 3Q in terms of how consumer products did versus Wizards versus entertainment? And then I have a follow-up on a longer-term question as well.

Thanks, Jason. Thanks for coming. I will turn that question over to Deb, but what I will say is we do have an earnings call coming up in a couple of weeks. So we will provide more details with that. Deb, anything to add?

No, absolutely. As we said, we had a different delivery cadence for Wizards of the Coast. We had a different delivery cadence for our entertainment segment as well. So as we look across our business, it is many of the things that we outlined. In addition to that, we all are looking around at the different investments in portfolios we have. FX is really a bit crazy right now. So as we look at that, that's having an impact for the quarter, which is why we say, I proposed rates, we think this is where we're going to be. But as Chris said, we really would love to talk to you about the future of Hasbro today, we have an earnings release in 2 weeks. So we'll be answering lots of questions then.

And then as a follow-up on a longer-term question, I'm curious if you could talk about what's the expectation within the Wizard segment between the growth of Magic and D&D? And any color on the margin differential between those 2 business units?

Sure. I think I'll do a quick start on that because I have some unique insights on that business unit, but I'll ask Cynthia if she'd like to come up to maybe do a more complete answer. So we see the future is bright for the Wizards business unit, both in terms of digital games, our digital licensing business and for the core brands. Obviously, we announced a ton of new initiatives for Magic: The Gathering. We're very proud to have Magic be our first $1 billion brand this year, and it's had a wonderful revenue CAGR, again. So I think you can apply -- we've said in the past 12 out of the last 13 years, Magic has grown. I think you can take to the bank that 13 out of the 14 will be the new stat that we'll be using. And then, gosh, if we haven't shown enough clips of exciting new D&D innovation and content to kind of show what we think is the growth potential of that brand, well, we can throw another clip up on the screen for you, if you'd like. So Cynthia, I'll let you answer in more detail.

Some more clips and we can certainly talk about it, [indiscernible] super excited about it. We are thrilled that we're going to be the first -- Magic will be the first $1 billion brand. And as you can tell, the team still has plenty of plans to keep it growing. So I think you should expect to see Magic growing in the high single digits over a CAGR period. Magic, you'll -- I'm sorry, D&D, you'll see grow extensively from the digital investments that we're going to be making from both D&D Beyond to video games to the consumer products that you'll see. We're going to be doing a lot with Kwamina on our direct-to-consumer. And today, if you read our press announcement, you'll see us talk about one of the investments we're making in new talent. We announced our new Senior Vice President for Dungeons & Dragons. His name is Dan Rawson. He comes to us after a long history, decades experience of leadership in technology, e-commerce and marketplaces. So you can see we are investing in the talent to take us forward on that digital run.

Yes. And to the point on margins, our tabletop business in both Magic and D&D is excellent margins, 40% plus. Digital tabletop, like D&D Beyond, even more excellent. I don't know what is more excellent than excellent, but it's more excellent than excellent. Our video game margins will be a little less, but still quite good. And a lot of that just has to do with how we depreciate capitalization costs associated with development. I think I called on Linda.

Linda Bolton-Weiser with D.A. Davidson. So as you talk about all the changes going on in your business, everything you're doing, there's a lot of favorable mix effects that are showing up all over the place. Is there any way to quantify the margin expansion you expect over the many years? How much of that is just mix alone? Have you been able to quantify or analyze that?

Well, gosh, I think mix will be a significant portion. I think over the 5-year period, mix will be a significant portion as will be the focus. I think over the 3-year period, certainly taking about $300 million of cost out of our business. That has a very favorable impact. And that is a favorable impact on our margins, and we believe it has a very favorable impact on the enterprise value. If you just took the multiple that Hasbro has today, that's $3.5 billion, $4 billion worth of incremental enterprise value associated with the company. Deb or Eric, do you guys have anything to share about how you guys think the mix is going to change over time?

I think we've tried to outline today what we see as the growth rates in the various segments of our business. And as we talked about, the investments in Wizards and digital gaming will drive a lot of that. And as we shed the nonstrategic things or the assets that we feel are best licensed or that categories that we don't excel in. And I'll let Eric talk about that a bit. We see that providing incremental margin opportunity as soon as 2023.

Yes. For us, especially on the consumer product side, you've seen us make some pretty bold moves over the last 24 months. We're certainly investing in our own businesses. We highlighted the new franchise brands today. And as we move out of a lot of those licenses and less profitable owned brands and moved to the licensing model. In that licensing model alone, we generate upwards of 55% to 60% of margin to Hasbro and to our shareholders. That's a big difference than the run rate in the consumer product side of the ledger. So you can kind of model as we move out of some of these businesses, move into stronger-performing brands that we own, and then move more of our business into licensing. We highlighted our goal of over $400 million in licensing. There's a lot of underlying profitability that will be generated there in our business.

Yes. I mean -- and last but not least, if you just take a channel view of it, part of the reason we focus so much on direct in today's presentation, and location-based entertainment. Those are some of the highest margin channels that we have in terms of the type of merchandise we sell and the ASPs we can sell them on. And so those are exciting growth opportunities for us. Probably between those and e-commerce, probably our highest growth opportunities.

And just a second question, more on the E1 entertainment business. I guess for us, toy analysts, it's a little bit hard to analyze this entertainment business. Is there anything you could tell us about what KPIs maybe outsiders should look at to compare that business to other similar businesses that are competitors? So if we think about valuation of that business, what kind of KPIs or metrics? Is it number of properties that you're doing each year, the distribution you're getting for that? Like what are the KPIs?

Well, I'll give a high level, and then Deb is a bit more experienced at this than I am. But certainly, the number of half hours of content you're creating for the TV side for both the scripted and unscripted, certainly, the kinds of films that you're generating and what the box office tracking is looking at and then the value of the library is considerable. It's the highest margin portion of the business and looking at what the overall amount of content is in that library and the composition of that library. And we're very fortunate in that regard. We have Emmy-nominated series like Naked And Afraid. We have hit series like the Rookie and its new spinoff, The Rookie: Feds. The Mark Gordon library has Monster hits like Gray's Anatomy that we have partial ownership over. And that's very cash tendered for us.

And we've added to that library over the past couple of years. You think about the cash spend that we've provided for content over the past few years. I mean we've spent hundreds of millions of dollars of that content that you're going to see actual revenue starting to come from next year with D&D: Honor Among Thieves and many of the other Hasbro branded properties that we'll be seeing come out over the next few years. So we'll be growing those, and we'll try to highlight what some of the upcoming deliveries are going to be as well.

Eric Handler, MKM Partners. Two questions. First, I wondered if you could talk about with E1 and the movie investments. I think a few years ago, Brian had talked about being opportunistic to take advantage of some profit participation in films, I think something like upwards of $30 million depending on the movie. I like the idea of being able to profit off of good content. Is that still in the cards?

Well, I certainly think if it's Hasbro-based IP, we definitely -- that's definitely in the cards. What you're going to see from us in our film and TV division, in particular, because our family brand segment is 100% focused on Hasbro brands. More and more of our content investment, more and more of our talent is going to be squarely focused on Hasbro IP and Hasbro content. I mean the Hasbro Blueprint, that is our flywheel. Amazon has Prime. Microsoft has cloud. Disney has theme parks. We have the Blueprint. And so if there's a big theme that you should take away, focus and scale is what we're thinking about every aspect of our business, whether it's the toy side, the game side or the entertainment side. And the way we do that is driving that Blueprint flywheel.

Great. And then secondly, on video games. The business has proven to be very capital intensive. I mean a AAA type game could be $100 million to make. A mobile game could be a few million, but tens of millions of dollars to grow its user base. I'm curious, where are you willing to take shots with internal development of video games? And where do you sort of figure out you want to be, take the licensing model.

Well, Cynthia is going to be a popular participant. I'm going to ask her to come back up on the stage. I will talk very briefly about how we think about it. So we use what's common in the industry is called a phase gate process, where you have a very small portion of your overall production budget that you spend in different phases that escalate over time. And then we have very rigorous KPIs and data that we need to see around what we think a game is going to do. Inherently, it's a portfolio-based business. Not everything is going to be hit, but you maximize your chances of a hit by really following those KPIs. So Cynthia, I want you to take it away, how we think about it?

I'd say, there's a few pieces here. We'll go a little deeper on the phase gate. So you start at concept, we'd spend shy of 10% of what you'd spend in concept and you decide to shut it down or not. Those who progress on to preproduction, you've got to come out of preproduction at less than 20% roughly, and you've got to have a solid, solid business plan that the outside world believes this thing is going to be successful. Then you go on into production and eventually release. We are -- I've already shut down 1 game. I am not shy about shutting down a game if it is not hitting those metrics. You talked about a portfolio, let's go there next. There are people who are expert at making certain games. We have a partnership with Larian Studio who's making Baldur's Gate 3. It's already out in pre-release. So many people excited about it on steam and ready for its release, which they haven't announced yet, it should be coming next year. They are masters at that game. So we were happy to license to them for them to do that. Similarly, licensing has a much higher margin because we're not really investing in that, and we just have a piece of the revenue of it. So similarly, we work with people who are incredible at making mobile games. We have done some mobile work for Arena. We'll do some in the future. But for the most part, we will lean into AAA, and we will ask the people who are expert at mobile and doing that. And that way, we're able to focus our teams and derisk our portfolio.

Thanks, Cynthia.

Thank you.

Thanks, Eric.

Great. Mike Ng from Goldman Sachs. I just have two. First, on licensing. It was encouraging to hear about the revenue targets for the royalty revenue and the 10% retail sales CAGR. Could you just base us on where we are today in terms of royalty revenue? And is that 10% CAGR an inflection from what we've seen in the past? And is there a reason why there should be an inflection, whether that's greater IP ownership or content investments? And then I have a quick follow-up.

Yes. Thanks, Mike. I think a big takeaway on licensing is, we've often talked about the Vault of IP that we have. Well, it turns out you don't make a great interest rate when you stake your cash in to vault. And so the same thing with the IP. So we're going to exercise it. We're going to think about them as Hasbro Classics. We're renewal brands. and we're going to be able to make money off of those brands because there's a lot of people who have fun memories of them, who like them, and we have a lot of partners who are motivated to drive it. Likewise, we're going to take the gloves off in terms of what categories we're going to take our franchise and portfolio brands into. And there's a lot of upside potential inside of the toy space and outside of the toy space, like we've seen with Lego and Transformers. Eric, I'll give you the opportunity to kind of talk in detail about it.

I appreciate the question. We've already highlighted a few of the hurdles and benchmarks that we're shooting towards in terms of $40 million in royalties earned, the 10% CAGR. We talked a bit about the operating margin expansion that we get in licensing north of 50%, many cases, north of 60% plus. So it's a really great place for us to continue to pioneer and drive. As Chris mentioned and Casey talked about, we're really looking at this period of time to be a significant pivot to the approach. We don't typically talk in this industry about licensing Hasbro brands to other toy and game manufacturers, that's pretty new. And as Chris mentioned, we're excited about the progress we're making in the early days. The deal with Lego is a big deal for us. The idea that the -- I think it was announced today or yesterday, the announcement that we're going to license out a little as pet shop is a big deal for us and something that we feel really positive about as we look to grow our business in the future. And you're going to hear more and more about these opportunities in the days to come. We have a 1,500-brand vault. So when you talk about that opportunity, that's very exciting to us. There's also a lot of parallel opportunities. When you think about Transformers and categories that we don't necessarily invest a lot of money in on the manufacturing side, there's a lot of ways to expand the brand. And again, it's a very different approach, when you put the consumer at the center versus worrying about how much shelf space you're going to get at a brick-and-mortar retailer. And that's what we're doing today. We're thinking about what is that consumer opportunity and the brand that it represents and all the different avenues that we can unlock with our brands versus looking at a very linear piece of shelf footage and trying to figure out how we can slot in certain products into that and being worried about competitors if we were to license out those brands. So we're very optimistic about where we're going with our licensing strategy, and I think Casey continues to bounce around in his chair every time we highlight a new opportunity like we did today with Dungeons & Dragons.

Yes. So short answer, it's definitely an uplift over what we've seen, and it's really just opening the aperture to the opportunity.

Great. And just one for Deb on cost savings. I just wanted to clarify how we should think about the $250 million to $300 million of savings. I know you mentioned, they're annualized. Should we think of those as also realized in the year? And how much should drop to the bottom line versus being reinvested in other places?

Deb?

So we will continue to reinvest over time, but we expect the $250 million to $300 million on top of our investments to be fully realized by the end of 2025 annual run rate savings. And I gave a cadence, and you'll notice, there's a difference between $250 and $300 million. Chris has challenged us to actually find more in the company, and we'll continue to look at that as we continue our review of the business over time. But by the end of that year, you will start to see those savings actualized in the P&L.

Yes. So this year, we identified $50 million in annualized run rates. That will really start to matriculate in Q4. You should start to see that throughout next year, and we'll find another $100 million that we've already identified and start to activate on during next year. And that will start to matriculate into the P&L as we activate it. Hey, can we go to the front, Arpine?

Arpine Kocharyan, UBS Investment Bank. In terms of doubling the gaming business overall through 2027, obviously, a very impressive goal, I was wondering if you could detail what you need to invest to get there, having kind of the perspective of what you put into MTG to bring it to where it is today? And then I have a quick follow-up.

Sure. Yes. So we had a similar goal in 2018, where we talked about how we would double our Wizard business in 2023, managed to complete that around mid-2021. So that was a great start on it and gave us a lot of confidence on it. We continue to see a lot of momentum in Magic: The Gathering. We think that's a big brand. We think it only gets bigger as we embrace its role as a play system that we can bring in, both our own IP and exciting new IP that invites in new players and excites our existing players and collectors. We think D&D has an incredibly bright future as an entertainment brand -- as a big-ticket entertainment brand, as a major blockbuster video game brand. Keep in mind, there's been over 100 video games based on D&D over its 50 years in existence, some of them seminal names in the genre. Baldur's Gate 1 for example, kind of re-kickstart RPG games, and we expect Baldur's Gate 3 to be a game of the year contender next year. So we see a lot of upside in video games. And then digital tabletop, I think that really opens up the aperture for how much money we can make off of D&D, and how we can engage and monetize our players. I don't know how many of you are big time nerds. If you are, I've got a killer new game table coming to my house, so I need people to play with. But if you're a D&Der and you sit around the table, typically, there's about 6 people at the table. There's a D&D -- there's a dungeon master who runs the game, and then there's 5 players. We make money off of one of those people. We make money off of the dungeon master typically. By digitizing the game and engaging players and being able to allow them to be able to kind of peacock out their player, add new kind of flare to the experience, there's all new monetization opportunities very similar to free-to-play games, like you'd see with Fortnite or Minecraft, et cetera. So we see a lot of upside there. In terms of an investment perspective, we're going to be at least continuing the same investment cadence that we've been making in Wizards of the Coast for the last several years if not accelerating that as more and more games that Cynthia has in the pipeline, kind of goes from that concept preproduction development phase into the production phase. Now those are a little bit too early to be able to share publicly because they're big investments, and we want to make sure the announcements on those are fan focused. But I can tell you in future investor days, that will be a major component to what we talked about.

That's very helpful. And then a very near-term question. Sorry about that. Could you talk about the health of the retailer and kind of hear about inventory situation and there's a lot of concern about lower-end consumer slowing? And me and Eric were talking about -- actually offline about that. What are you seeing from where you sit today as you're looking to sort of the all-critical holiday season?

Sorry, Eric, do you want to take that?

Sure. So there's been a lot of discussion about that clearly around the world. And again, we start with the consumer. And if you think about all the different channels we service, I guess the most nearest term data I can give you is that we just completed PulseCon 2022 that Kwamina and his team just executed. And we had a very successful PulseCon with growth year-over-year. So it's clear to us that as we focus our strategy and maintain our focus on areas like the fan consumer that there's still opportunity for growth. That said, Deb gave some excellent guidance on Q3. I won't repeat it. We gave our guidance on Q4. I won't repeat that either. But as we think about the full year, we guided to flat to slightly down, and we feel like that's appropriate given all the different macroeconomic headwinds and FX rate changes and things like that around the world.

Yes, thanks. So we have a measured guidance for the year, but we do see a lot of green shoots in Q4 and a lot of momentum that will start in Q4 and will grow into Q1 and Q2 and accelerate through 2023. Among them, 7 blockbuster films, each of which are major merchandising opportunities with favorite brands, 2 of which come from Hasbro or our major partners and then some just amazing innovation that you guys will be able to experience outside, whether it's Hasbro Selfie series, which is a direct exclusive; our new Gelfire product from NERF or just a ton of cool stuff from our Play-Doh and Games brands.

Gerrick Johnson, BMO Capital Markets. I have 2 questions. First for Deb. Can you just clarify what you said about revenue shifts from 3Q to 4Q and 4Q to '23? What were those and why?

So we did have some revenue shift, as we talked about we would, with our releases of Magic. We also have some entertainment deliveries that we expect could shift just based on production schedules from Q4 into Q1. It doesn't go away, just shifts for when we're delivering. That being said, we're super excited about the deliveries we've had now. Steve talked about The Woman King, which is having terrific results. I think it's premiering in the U.K. right now as we speak. So it's -- just as we look at it, we have some shifts and the things impacting Q3, we talked about in our second quarter earnings. We just wanted to make sure that people -- some people heard it because we didn't think they really heard it in Q2. And FX, just the actual effect, its FX rates have moved more than we thought they would.

Okay. And Chris, a softball here. I don't do this often, so don't used to it.

Thanks, Gerrick.

Blueprint 2.0. I'm in an elevator with an investor, what do I tell them are the differences -- the key differences between 2.0 and 1.0?

Well, I think the biggest thing is the square focus on the consumer. Blueprint 2.0 is built off of fewer brands that are bigger and more profitable, that are underlied by a brand insights platform that we're investing aggressively in, and I know that maybe sounds like, hey, everyone invests in brand insights. Who cares? Well, we did it back in 2016 at Wizards of the Coast, and it kicked off the best growth spurt that we've ever had. That endures to this day. Being able to understand your fans, being able to segment them and build bespoke products for them and expand your channels and categories intelligently, that is such a huge value unlock, especially when you have a portfolio of IP like Hasbro does. Basically, what we're telling you today is we're just on the ground floor of the potential of these brands. These brands should be $1 billion-plus brands, at least $500 million is our goal. And there's a ton of upside associated with that. And that's why you're seeing the bullishness from us. You might have had to click a couple of extra floor buttons on the elevator if that [indiscernible]. Yes.

Can you share a little more about the data, what you're investing in on the data side and what's maybe changing there? I mean, I think -- you probably have a lot of data on me from Magic Arena. That's a pretty obvious one place where you can see what consumers are doing. But I'm curious as we get to physical toys and stuff how you're able to track that or to establish a closer relationship with the customer.

Sure. And what was your name again?

Sorry, I'm John [indiscernible] from Artisan Partners.

John, you have an impressive win/loss ratio on your drafts in Arenas, so thanks. So it's a combination of things. So we are investing, first and foremost, in people. So we're bringing on new people across the business. Analysts, economists, data scientists, that's going to be a major inflection point for us. Then we're making a lot of systems investments. We're investing in Pulse to have a new kind of an integrated e-commerce platform. We are continuing to lean into things like Tableau and AWS and Snowflake and Snowplow to drive like our big data systems and integrate across multiple systems. And then last but not least, we're investing a lot in direct and digital games, which give us all new levels of insight. Because we're able to invest in those and we own and operate those, we can then extend them logically to our third-party partners. And the most logical extension will ultimately be, and this will probably be a year or 2, our location-based entertainment and Wizards Play Network partners, where you can start building loyalty programs. So we'll start to be able to get like this unique view of what your digital persona is as well as how you shop in real-life environments and how you play in real-life environments. And that data advantage will just build over time. It's what we saw at Wizards and it's what we're starting to see inside of Hasbro as we pursue more volumetric studies, be more databased and be more e-commerce focused. So I think we only have time for 1 more question or 2 more. We can go 2 more.

One here.

Yes. Sure.

Drew Crum, Stifel. So another quarter into this economic cycle, Chris, just your confidence in the ability to sustain with Wizards of the Coast. You've, in the past, touted its resiliency. And what percentage of the business is free to play? And do you think that holds up okay?

Yes. So my confidence is obviously pretty high. 13 out of 14 years is pretty good. When I started back in 2016, the question mark was, is this thing going to grow? And actually, in 2015, 2016, we were flattening, and we came up with all new value unlocks. I'm a big believer in the power of talent and the power of people with data, and that's what we did at Wizards, and that's what we continue to do with Wizards. I mean just look at the kind of people we've been hiring, the head of command. Someone who comes from Amazon and Dell, someone who comes from Amazon and Microsoft, someone who comes from leading the Halo franchise back at Microsoft, those are just a few of the hires that we've made in that business over the last year or so. Across our whole business, just speaking bigger than Wizards, you have people from Mars, Kimberly-Clark, Dell, Apple, Nike. We're bringing in the talent that understands how to marshal data, how to marshal insights and how to build new channels and save a lot of money in the process. So that's what underscores my continued belief in the Wizards business, and that's what underscores my belief in our ability to achieve this plan over the next couple of years. And final question, sorry. We will all be available on the outside. So even though we might not be able to get it on the webcast, members of our management team, even some members of our Board of Directors, will be here, and we'll be happy to talk more and answer your questions.

Fred Whightman from Wolf, I'll just do 1 question, given the time constraints. Can you just touch on the evolution of DTC. You guys talked about a lot of the growth opportunity there. Can you touch on sort of as that migrates from sort of collector focus to more what presumably seems to be mass consumers? And how do you sort of see that evolving in the consumer products space specifically?

Yes. So I see a couple of different opportunities there. Clearly, I think, we've barely even scratched the surface of what we can do with collectors. That market is big and it's growing. We talk about the agelessness of play. This concept that toys aren't just for kids anymore. Games are just for teenagers. It's increasingly going older and older and older. I mean we're building a snake eyes video game. We're doing it with the former exec producer of the Batman Arkham series. He's an expert in that genre. We're not building it for 12-year olds. We're building it for the core fans of GI Jo, who are 30- to 50-year olds, who also happen to be kind of the core fans of action-adventure genres and action-stealth genres online. So we see a lot of upside in the core fan. We see a lot of opportunities in taking the digital fan and turning them into a collectible fan as well. We just hinted at what the possibilities are for print on demand, but we see a very powerful content to commerce opportunity where you play the game, you buy the figure, you have it on your shelf. And I think that tease that we showed of where we see D&D and D&D Beyond is, that's a whole new category and a whole lot of potential for us. And we're getting some excellent operational practice flicks with selfie series, which in and of itself is an amazing business as well. Eric, anything to add about how we think about DTC evolving?

I think your setup was excellent, Chris. We really feel like we're on step 1, early innings, all the different things you could say about being at the beginning of the process. If you think about a couple of the things that we're so excited about, you asked about our optimism. The first is the connectedness across Hasbro. We have a lot of different D2C opportunities that as we start to leverage those across the company, bringing in Kwamina and Cynthia talked about the Pulse and secret layer together, that's a big opportunity to not only share data but also unlock new opportunities. We talked about Casey's -- we talked about Casey and his licensing team, bringing those new product categories to our direct-to-consumer experiences, that's going to unlock a lot of new revenue for Hasbro. And clearly, as we look at new platforms for expansion, with the Selfie series for personalization and customization, we're at the very early innings since we've literally launched this week. But we see that as a very big platform with a lot of scalable opportunities as we go forward. So just a lot of these things that we're very optimistic about that we can unlock with our D2C platform. And that if you take the envelope of geography, today, we're in only a few markets. We see a tremendous geographic envelope that we can exploit. That's super exciting for us too and on and on and on. So we can certainly talk about DTC for hours, but I think it's something that we feel very passionate about. The other thing I'd leave you with is most of these things are exclusive to that channel. And over 75% of our D2C business today is exclusive to D2C. We still have a wonderful and very large footprint and great partnerships with retailers around the globe. Matt talked a lot about the perfect store. We're going to continue to be able to leverage that business and grow that business, while building that direct-to-consumer relationship with our fans, whether it's digitally or physically, and probably with a lot of confluence across both.

Great. All right. Well, we're beyond time. So that's a wrap. Thank you all online and in the room again for spending a few hours with us today to learn more about our strategy and why we're so excited about Hasbro's future, as I mentioned. For those in person, we invite you to join us for lunch. Time to experience some of our newest innovations firsthand and spend some time with our executive team. For those online, enjoy the rest of the day. Thank you.

Thank you for attending Hasbro's Investors Day. Have a great one. Thank you.