Hasbro Inc

NASDAQ:HAS

Earnings Call Analysis

Hasbro Faces Revenue Decline but Sees Margin Improvement and Strategic Growth

In Q3 2024, Hasbro reported revenues of $1.3 billion, marking a 15% decline year-over-year. Revenue drops were primarily driven by a 10% decline in Consumer Products and an 86% fall in Entertainment, linked to the eOne divestiture. Despite the revenue drop, adjusted operating profit rose to $329 million, resulting in a 25.7% operating margin, up 2.9 points. For 2024, Consumer Products revenue is now expected to fall by 12-14%, an adjustment from earlier guidance, while Wizards revenue may decline by up to 1%. The company anticipates an uptick in profitability moving forward as they focus on high-margin growth areas.

Overview of Q3 Performance

Hasbro's performance in Q3 reveals significant challenges, as the company reported total revenue of $1.3 billion, a decrease of 15% year-over-year. Excluding the impact of the eOne divestiture, revenue declined by 9%. The Wizards segment saw a 5% decrease, while Consumer Products revenue fell by 10%. The entertainment segment suffered an 86% drop, but adjusted operating profit was $329 million with a margin of 25.7%, reflecting a 2.9 percentage points increase over the previous year.

Segment Breakdown: Wizards and Consumer Products

In the Wizards segment, growth from 'Magic: The Gathering' and 'Monopoly Go!' helped offset declines from 'Baldur's Gate 3'. Consumer Products, however, faced challenges as revenue went down due to exited brands and reduced closeouts. Notably, while volume declined, operating margin improved to 15.1%, a gain of 3.9 percentage points, thanks to a lucrative licensing mix and cost controls.

Year-to-Date Trends and Financial Health

For the year-to-date period, total revenue was approximately $3 billion, an 8% fall compared to the prior year. Yet, adjusted operating profit stood at $726 million, maintaining a strong adjusted operating margin of 23.9%, up 10 points year-over-year. This indicates Hasbro's resilience through effective cost management and supply chain improvements.

2024 Outlook: Guidance Adjustments

Looking ahead, Hasbro adjusted its revenue guidance. For the Wizards segment, expected revenue is revised to be flat to down 1%, improving from previous guidance of down 1% to 3%. This optimistic outlook is driven by strong performance in 'Magic'. In contrast, Consumer Products is now expected to decline by 12% to 14%. This downward revision is attributable to continued challenges with closeout volumes and action figures. Operating margin guidance for Consumer Products remains at 4% to 6%.

Cost Management and Savings Initiatives

Hasbro is making strides in operational efficiency, with $240 million in gross cost savings achieved over the first nine months of the year. Expectations for cost savings remain robust, with $200 million to $250 million anticipated for 2024. This focus on cost management is crucial as the company aims to enhance profitability and cash flow.

Market Trends and Product Innovations

Despite the difficulties, Hasbro is witnessing positive trends in several core brands. Recent successes include 'Play-Doh', 'Marvel', and 'Dungeons & Dragons', which have shown promising performance in market positioning. The strategy to innovate and align retail promotions has positioned Hasbro well for the upcoming holiday season, signaling potential recovery as inventory levels remain at the healthiest point in seven years.

Conclusion: A Path Forward

Hasbro's organizational strategy is shifting towards gaming and digital, aligning with consumer trends. Although the road to recovery features significant challenges, especially within Consumer Products, the company's commitment to profitability, cost efficiency and innovation signals a cautious optimism for 2024 and beyond. Investors should focus on Hasbro's capacity to navigate the current environment as it positions itself for continued growth in its key franchises.

Earnings Call Transcript 2024-Q3

[Operator]

Good morning, and welcome to Hasbro's Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time.

At this time, I'd like to turn the call over to Kern Kapoor, Senior Vice President of Investor Relations. Please go ahead.

[Kern Kapoor, executive]

Thank you, and good morning, everyone. Joining me today are Chris Cocks, Hasbro's Chief Executive Officer; and Gina Goetter, Hasbro's Chief Financial Officer. Today, we will begin with Chris and Gina providing commentary on the company's performance, then we will take your questions. Our earnings release and presentation slides for today's call are all posted on our Investor website. The press release and presentation include information regarding non-GAAP adjustments and non-GAAP financial measures. Our call today will discuss certain adjusted measures, which exclude these non-GAAP adjustments. A reconciliation of GAAP to non-GAAP measures is included in the press release and presentation.

Please note that whenever we discuss earnings per share, or EPS, we are referring to earnings per diluted share.

Before we begin, I would like to remind you that during this call and the question-and-answer session that follows, members of Hasbro management may make forward-looking statements concerning management's expectations, goals, objectives and similar matters. There are many factors that could cause actual results or events to differ materially from the anticipated results or other expectations expressed in these forward-looking statements. These factors include those set forth in our annual report on Form 10-K, our most recent 10-Q, in today's press release and in our other public disclosures. We undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call.

I would now like to introduce Chris Cocks. Chris?

[Chris Cocks, executive]

Thanks, Kern, and good morning. Q3 continued to demonstrate the bottom line benefits of the structural and strategic changes we are making at Hasbro. Two of our strongest profit areas, games and licensing, outperformed expanding operating profit margin for the third consecutive quarter. The dynamics we're observing across MAGIC and D&D in both analog and digital reinforce our confidence in the long-term health of the brands. Our competitive advantage as an IP licensor is also gaining steam as we see the staying power of Monopoly Go!, the resurgence of fan paper brands like MY LITTLE PONY and strong POS growth in our out-licensed toys portfolio.

Consumer Products revenue came in lighter than we anticipated, offset by strength in Wizards, but the pace of the decline moderated significantly versus the first half. We should see that trend continue into Q4. We're already seeing some encouraging data points across toys and board games that prove our innovation is getting sharper and retail alignment is healthy. While we are lowering our full year revenue guidance for the segment, we are seeing a solid return to profitability for this business. An improving bottom line, coupled with strong fundamentals across the balance of our portfolio, [ offer ] much improved profitability and cash flow for Hasbro both in 2024 and beyond. This resilience in our business model has been years in the making, strategically shifting our mix towards games, digital and IP licensing, the future of play. This is where the consumer is heading and we're following our fans as they age up and look for their favorite brands on digital platforms. It's what will make Hasbro a diversified, modern growing toy and game company. Gina will walk through more of the financials and our latest outlook. But first, I'll offer some business insights.

MAGIC: THE GATHERING continues to be a standout, leading the trading car genre and growth year-to-date. This is despite big shoes to fill from last year's blockbuster Lord of the Rings set. In Q3, MAGIC posted another quarter of growth led by our [ tentpole ] releases, [ Bloomboroh ] and the horror-themed [indiscernible], showing how MAGIC Original IP consistently delight fans. Arena also posted solid growth, driven by [ Gloomborouh ] and healthy engagement with the standard format with sequential upticks in new player acquisition rates and weekly average user counts. Beyond the strength in tentpole sets, we saw outperformance in backlist, particularly [ CommandoDex ] as well as Secret layer, including a sold-out festival in a box ahead of this weekend's MAGIC Con in Las Vegas. It's shaping up to be our biggest one yet and should be [ chock full ] of exciting new product announcements like the one we just did at New York [ Comicon ] with our partners at Marvel. Coming in December, MAGIC fans can get the first cards from our new collaboration with Marvel, featuring themed secret layer drops for 5 of their favorite Marvel superheroes, including Iron Man, Black Panther and Wolverine. We are expecting each mini set to immediately sell out.

For D&D, the updated players handbook for Fifth Edition is now our fastest selling product in D&D's 50-year history, beating plan by over 50%, and our acquisition of D&D Beyond continues to pay off, driving D&D's total mix of direct-to-consumer revenue from 0 at the time of acquisition to 60% today with registered users more than doubling to $19 million. I'm excited for fans to get their hands on the new Dungeon Masters guide releasing next month. The new [ artwork of the hits ] and the streamlined introduction to running campaigns has been met with stellar early reviews.

Licensing continued to be a bright spot across Hasbro. Monopoly Go! is settling into a steady state, generating approximately $10 million in licensing revenue per month. Our partners at [indiscernible] are continuing to innovate with new formats, including third-party content from Marvel and Tycoon Club, a new loyalty program to better serve its community of dedicated fans. Working with a best-in-class partner like [ Scopely ] helps position Monopoly Go! as a long-lasting mobile game at scale, and the team remains focused on driving user acquisition and retention.

Within Consumer Products licensing, our strategy to out-license brands in the toy space is performing ahead of expectations. Year-to-date, for Real Friends and Littles [indiscernible], 2 recent out-licensed properties are showing over 50% year-over-year POS growth. Noting on last quarter's strength, MY LITTLE PONY is having a resurgence through successful international partnerships across multiple merchandise categories, music and collectible cards. And we continue to roll out some great products across platforms in partnership with LEGO. For instance, LEGO, Peppa Duplo is now available in all markets. We also saw the release of the LEGO icons Bumblebee SKU ahead of our TRANSFORMERS 1 movie release as part of LEGO's adults welcome marketing campaign for Q4. Toy revenue softness was due in part to our decision to sell less closeout volume in favor of higher profitability as well as incremental softness in action figures, particularly Star Wars. We view action figures as a long-term bet for the company and place Hasbro has special strength from preschoolers to kids to adult fans, so we are bullish about this segment's eventual return to growth. One of our bigger bets for this holiday is Blade, which launched its fourth generation Beyblade X over the summer.

Since turning on media just a few weeks ago, we've seen POS accelerate meaningfully with promotional events at our top retail customers and expect that to continue with the new anime series on Netflix and Disney. While we initially expected a bigger POS churn in Beyblade in Q3, we're excited to see it respond favorably in recent weeks and expect a strong ramp as awareness scales with kids. Marvel is also seeing some mix increases on the heel of Deadpool and Wolverine, the new XMen 97 animated series and continued strength with [ Spiden ] and His Amazing Friends, including our new hit preschool toy, Dancing [indiscernible] [ Party ]. We're excited for 2025 with new Captain America and Fantastic 4 blockbuster films on the horizon, and building hype for Disney's blockbuster 2026 lineup, including Avengers Doomsday, a new Spider-Man and a new The Mandalorian & Grogu Star Wars film, helmed by blockbuster Director, John Fabre. Play Dough had its best back-to-school ever with POS up almost 20% and the classic color 4 pack rising to the #1 position across the entire arts and crafts category.

We're seeing good early momentum for the pizza delivery scooter with strong top toy placement at our major retail partners. We also have some exciting innovation for Peppa Pigs with Muddy Puddles Peppa, a top toy at Walmart and Amazon.

Last but not least, our Board game portfolio is one of the earliest examples of our new focus on fast-to-market innovation across consumer segments, whether it's our new Monopoly Harry Potter board game for families, Life in Reterra, the new award-winning strategy game. Arschmallows, a best-selling adult card game from Germany, we are partnering with for international expansion. Hasbro is delivering delightful new products that are getting consumer attention and driving new sales.

Combined, we are pairing our new products with significant expansions of in-store promotions while boosting advertising year-over-year for our innovation bets to drive consumer demand. It's still early in the holiday, but we anticipate continued improvement in our toy business as we build the foundation for continued profit growth in 2025 and 2026.

To recap, I'm pleased with how Hasbro is executing. Our margins are up, our inventories are down and the healthiest they've been in 7 years. Our cost structure is getting where we needed to be, and our toys are showing up on shelf the best they have in years. Our key initiatives around digital, licensing and reinvigorating our product innovation are bearing fruit as we meet bands where they are. While we are still mid-innings in our toy turnaround, 2024 promises to show a significant uptick in profit, cash flow and operational rigor for the company that will set us up for 2025 and beyond.

I'd now like to turn the call over to Gina Goetter to share more on our results and what you should expect for the balance of the year. Gina?

[Jaime Katz, analyst]

Thanks, Chris, and good morning, everyone. Our Q3 results demonstrated the increasing resilience in the Hasbro business model, underpinned by the strength in gaming and licensing. While toy revenue fell short of expectations, we still saw a significant moderation in the decline as compared to the first half, while achieving the highest operating margin for the segment in 3 years. Between strength in Wizards, licensing performance and improvements in the underlying profitability of toys, I'm encouraged by the healthier position Hasbro is in today versus the start of the year. The outperformance in our Wizards segment has proven that our leadership positions in trading cards, role playing and digital licensing continue to resonate. MAGIC delivered an all-around solid quarter across tabletop and digital for both tentpole and backlog content. Consumer product licensing was a bright spot to the second straight quarter driven by MY LITTLE PONY training cards and a notable driver behind the CP operating margin expansion. Our supply chain team delivered once again finding additional productivity wins, while our inventory has remained at multiyear lows, down 40% year-over-year. Our strategic decision to keep supply tight has resulted in a significant drop in closeout volume, which continues to be a gross margin benefit at the expense of CP revenue.

This is a trade-off we are consciously making as we continue prioritizing restoration of toy profitability, while sharpening our innovation to drive premium offerings to our retail partners. Staying disciplined with inventory across all our businesses is the right long-term decision for the company but it also heightens the importance of accurate demand forecasting and supply chain agility. As we continue to upgrade our processes and systems, we are focused on strengthening that muscle to ensure we have adequate supply of the products our customers want. As part of our transformation, we continue to look for opportunities to improve operational efficiency. As an example, we recently announced that within the CP segment, our global brand and commercial teams will be coming together as 1 organization under the leadership of [ Tim Kilton ]. We are also expanding our design team scope, further integrating them with our supply chain and product development teams in Asia. By bringing the design process closer to the source, we can bring products to market faster and allocate resources more efficiently across our portfolio.

A continuous improvement mindset is a key component of our broader transformation, and we will remain agile in adopting processes and structures to best meet the needs of all our stakeholders.

Now moving to our Q3 financial results. Total Hasbro revenue was $1.3 billion, down 15% versus Q3 of last year. If you exclude the impact of the eOne divestiture, total revenue was down 9%. The Wizards segment declined 5% in the quarter as we lapped the launch of Baldur's Gate. Consumer Products revenue declined 10% driven by exited brands, reduced closeouts and softer-than-anticipated volume. And the entertainment segment declined 86% due to the eOne divestiture. Absent this impact, entertainment revenue decreased 17% driven by deal timing. Adjusted operating profit was $329 million, for an adjusted operating margin of 25.7%, up 2.9 points versus last year. Benefits from favorable business mix, supply chain productivity, and reduced expenses were partially offset by volume deleverage within Consumer Products.

Q3 adjusted net earnings were $244 million with diluted earnings per share of $1.73, up $0.09 from the year ago period driven by the factors previously noted. We returned $98 million to shareholders through the dividend and ended the period with $1.2 billion of cash and short-term investments including the proceeds from the May debt offering, which will be used to repay our November 2024 note.

Year-to-date, total Hasbro revenue was approximately $3 billion, down 8% versus the same period last year. If you exclude the impact of the eOne divestiture, total revenue was down 8%, largely driven by the same drivers of Q3. Year-to-date adjusted operating profit was $726 million for an adjusted operating margin of 23.9%, up approximately 10 points year-over-year. We continue to deliver margin improvement despite the volume deleverage across the toy business. Year-to-date adjusted net earnings were [ $490 million ] with diluted earnings per share of $3.56, year-to-date operating cash flow was $588 million, a $253 million improvement year-over-year driven by the noted profitability improvements and working capital favorability.

Now let's look at Q3 results within our 2 major segments, starting with Wizards. Revenue declined 5% as growth in MAGIC: THE GATHERING and contributions from Monopoly Go! were more than offset by the anticipated decline in revenue from Baldur's Gate 3. [indiscernible] grew 3% behind the releases of [indiscernible] and [indiscernible], along with stronger results from Backlist and Secret Lair. Operating margin for Wizards finished at 44.9%, down about 3 points versus last year driven entirely by the decline in Licensed and Digital Gaming.

Turning to Consumer Products. Overall, Q3 revenue declined 10% and lower volume from exited brands and reduced closeouts, offset growth in licensed consumer products and volume increases in select brands like TRANSFORMERS, Beyblade and FURBY, continued softness in [ NERF ] and action figures, particularly Star Wars, also contributed to the decline in the quarter. As we've mentioned, we are continuing to prioritize profitable revenue while our closeout volume was down about 70% year-over-year and contributed to about 1/4 of the revenue decline for CP. It drove about 1.5 points of gross margin benefit. Adjusted operating margin for Consumer Products was 15.1%, up 3.9 points compared to last year, benefits from a more profitable licensing mix, supply chain productivity, fewer closeouts and reduced expenses offset the impact from volume deleverage.

On a year-to-date basis, despite the top line declining by over $300 million versus last year, we have absorbed the impact of deleverage and kept CP operating profit essentially flat. This highlights the significant progress we have already made in our turnaround and is a testament to our supply chain transformation and discipline on inventory and cost management.

Now turning to our guidance for 2024. We now expect total Wizards revenue to be flat to down 1%, which is up from our prior guidance of down 1% to 3%. The improved outlook is driven by year-to-date outperformance, particularly within MAGIC. Our outlook for licensed digital gaming largely remains the same with Monopoly Go! contributing roughly $105 million in revenue. We expect Baldur's Gate 3 to contribute about $35 million for the full year, with most of that revenue recorded through the first 3 quarters. As implied in our guidance, Q4 will see a more pronounced year-over-year decline driven by the timing of set releases for MAGIC. We continue to expect Wizards operating margin to be approximately 42%. This guidance also implies a step down in margin for Q4, entirely due to the planned revenue deleverage. For Consumer Products, we now expect revenue will be down at 12% to 14% compared to our prior guidance range of down 7% to 11%. This change is partly a result of the Q3 shortfall as well as a reduced forecast for closeout volume and action figures in the upcoming quarter. As implied in our guidance, we expect Q4 to see a continued moderation in the pace of decline as we aim to stabilize the CP business. We maintain our adjusted operating margin guidance of 4% to 6%. While this implies a quarterly step-down in Q4 margin, we should see significant year-over-year margin expansion as we lap last year's inventory cleanup efforts.

For Entertainment, adjusting for the impact of the eOne divestiture, we continue to expect revenue to be down approximately $15 million versus last year and adjusted operating margin of roughly 60%. We remain on track towards our target of $750 million of gross cost savings through 2025 and continue to expect $200 million to $250 million of net cost savings in 2024. Through the first 9 months of the year, we have delivered $240 million of gross cost savings and $177 million of net savings. Our total Hasbro adjusted EBITDA guidance remains unchanged in the range of $975 million to $1.025 billion. And given the improvement in our cash flow, we now expect 2024 ending cash to be above year-end 2023 levels. From a capital allocation standpoint, our priorities remain to first invest behind the core business. Second is to return cash to shareholders via the dividend; and third, to continue progressing towards our long-term leverage targets and pay down debt.

And with that, we can open the line for questions.

[Operator]

[Operator Instructions]

Our first question is from Drew Crum with Stifel. .

[Andrew Crum, analyst]

I have a couple of questions on Monopoly Go! I think you guys suggested recently that you had better line of sight on Scopely's plans for UA spend, and that you believe that marketing as a percentage of revenue would come in at the high end of a range of 25% to 35%. The third-party data, however, suggests that downloads have continued to fall precipitously. So can you reconcile the 2? It sounds like you're comfortable with a $10 million royalty revenue-per-month type cadence, but I just want to make sure that's still reasonable going forward. And then can you address how the launch of Monopoly Go!'s web store and presumably lower platform fees will affect royalty revenue that flows to Hasbro going forward?

[Chris Cocks, executive]

Drew, I'll start, and then Gina can fill in the details. So our implied guidance on about $10 million a month in terms of royalty revenue, just kind of like basically takes into account all of the various variables from what their gross revenue is, what their rev share is with the store or what they're able to drive themselves via something like Tycoon Club. And then last but not least, what we anticipate their UA spends will be. Based on the data that we've seen and that we can share because we have to respect Scopely as a third-party partner, and they have their own disclosure. We see pretty healthy UA rates. We see good KPIs in terms of the cost per install, which we think is a testament to the strength and ubiquity of the Monopoly brand. And we're seeing very strong engagement among their existing consumers and reengagement among lapsed consumers. And so all of that factors into what we believe will be a fairly steady revenue stream for us for many months to come.

[Gina Goetter, executive]

Drew, I'll just add the color, the decay rate, your coming comment on decay rate. We did see it as we moved through the quarter. So that was not as volatile as we've seen is bouncing around as we've seen in previous quarters. And then from a marketing spend standpoint, remember, last quarter, we talked about spending within that range of 25% to 35%, and I indicated that we were going to be probably on the higher end of that range. We absolutely saw that play through as we move through the quarter. So as you think about our guide for the year of that $105 million, we're sticking with that same outlook on the decay rate, so a moderated decay rate and that higher end of that range of marketing spend. So $30 million of revenue, 10-ish per month in Q3, and that's what we're anticipating for Q4.

[Chris Cocks, executive]

Yes. The only other thing I'd add, Drew, just as like kind of part 2 of your question, is the more successful they are with initiatives like Tycoon Club, the higher the potential revenue is to us. So we're sharing them on.

[Operator]

Our next question is from Megan Alexander with Morgan Stanley. .

[Megan Christine Alexander, analyst]

I wanted to start with the change in the consumer products guide, understanding that 3Q was a little bit worse. I think it does imply 4Q down mid-single digits or so. Seems like there are some puts and takes with maybe lower closeout volumes, but -- and maybe a little bit weaker POS. Maybe you can just help us understand what's embedded as it relates to POS, maybe versus what you're seeing today? And I ask because I think you're wrapping a pretty sizable top line headwind in the fourth quarter from some of the inventory actions last year. So just trying to understand how that kind of down 6-ish implied for the fourth quarter relates to what you're expecting from a purely POS perspective.

[Gina Goetter, executive]

Yes. Good question. Well, let's take the guide down in pieces. So roughly at the midpoint, it represents about $100 million of revenue. About half of that is due to closeout volume. So us not chasing bad deals or unprofitable deals. So about half of that call down is closed out. Then there's probably another 30% to 40% of that bucket that is associated with our Entertainment-backed brands, primarily Star Wars. We really saw that play through in September. It didn't kind of live up to the estimates that we had in the month in September, and we kind of took that trend and took it forward into our Q4 outlook. And then the last piece of the call down is really what we would call our growing pains as we move into this leaner inventory structure, tighter supply planning processes, more rigor on our demand planning forecast. There were just some places where our execution wasn't as tight as we wanted it to be. So those are the big 3 buckets that kind of caused the call down. .

In terms of your point on POS, we really haven't seen a material change in outlook as we move through the quarter or through Q4. So that really wasn't a piece of why we called it down. It was more of what we were seeing play through in closeouts in Star Wars, and then these execution elements.

[Chris Cocks, executive]

Yes. Megan, the only thing I would add is when you look at the mix of our products and our expectations for sell-through, our "good" toy volume, so our nondiscounted volume, we anticipate will be flat to up in Q4. Our discounted toy volume will be down quite significantly. I think year-to-date, it's -- our total volume is down like 70% on discounted volume.

[Gina Goetter, executive]

Yes. When you look at our total revenue, call it, like decline on CP, almost 1/3 of it is because of close out revenue. So much more profitable for us, obviously, but a headwind on the top line.

[Megan Christine Alexander, analyst]

Okay. That's really helpful. And then maybe I'll just ask about the CP margin, too. Was there anything onetime in the third quarter performance? It was obviously very strong despite the top line decline. And based on what you're telling me, it seems like you should continue to kind of have that mix benefit of lower closeout in the fourth quarter. So looking at like what's implied in the fourth quarter versus, I guess, what typical seasonality would suggest, top line getting better. Just trying to understand whether there's some conservatism implied in the fourth quarter margin guide or whether there was something we should be aware of the 3Q that won't repeat in the fourth quarter.

[Gina Goetter, executive]

Got it. Yes, there was nothing -- good question. There was nothing onetime in nature in our -- in the Q3 margin. It's actually quite a healthy -- you set the top line aside, it was quite a healthy underpinning in all of the improvements that we're making within the supply chain, you could really see that come through the P&L. In terms of year to go in the Q4 margin, a couple of things to keep in mind. One, royalty expense picks up in Q4. Just when you think of our mix of business and where it's coming from, there's higher royalty in Beyblade, the TRANSFORMERS, et cetera. Then the second piece, we are lapping all of the stuff that happens within managed expenses related to bonus replenishment, et cetera, we are lapping that. That kind of called out in Q4 of last year, we replenished this year. So those are the big 2 things that are probably atypical that you should be factoring in.

[Operator]

Our next question is from Christopher Horvers with JPMorgan Chase.

[Christopher Horvers, analyst]

So my first question is a follow-up on the CP outlook. Should you think about the third and fourth quarter, how much of the impact was from the exited brands in terms of how that influences 3Q and what the underlying sort of rate of the business is projected for the fourth quarter?

[Gina Goetter, executive]

Yes, good question. So about 2 points or about, call it, 30-ish or 20-ish -- $25 million-ish, that's my precise math, was due to the exited brands in the third quarter. Sorry, I missed it. What was the second part of you question, I missed it.

[Christopher Horvers, analyst]

Is there any in the fourth quarter?

[Gina Goetter, executive]

Yes, about the same amount in the fourth quarter as well. Yes. I guess the good news, as we move into next year into 2025, we can be done talking about exited brands impact because I think the bulk of it will be behind us.

[Chris Cocks, executive]

Yes. And the way to understand how we recognize revenue on those -- because they're not really exited. They're just outsourced to other third parties, and they're actually growing quite healthily. This year, we're basically recognizing the MGs associated with those deals, and those are relatively modest. Next year, by the end of the year, we should be -- based on the pace at which they're going, we should be kind of flowing through real time, a fairly healthy royalty rate on those, which is well above what the operating profit margin would have been when we were operating them ourselves.

[Christopher Horvers, analyst]

Understood. And then as you think about the Monopoly Go!, Chris had previously spoken about this game is going to last and benefit Hasbro for a long time. Part of that math was like the decay rate versus advertising coming down you talked about sort of this $10 million run rate for many months to come. I guess is it fair to say that the original expectation is maintained, i.e., there won't be some sort of precipitous drop as we look out a year from now and think about the back half of '25.

[Chris Cocks, executive]

Yes. I would think Monopoly Go! in 2025 would be flat to up versus what we realized in 2024.

[Gina Goetter, executive]

Yes, Chris, keep in mind that we have one additional quarter next year where we didn't have the -- we weren't surpassing the minimum guarantee.

[Operator]

Our next question is from Eric Handler with ROTH Capital.

[Eric Handler, analyst]

It looks like the legs for Baldur's Gate 3 is much healthier than what you anticipated at the start of the year. I wonder if you could talk about your relationship with [ Larian ] and how you can keep this just momentum with this game continuing to flow on an evergreen basis.

[Chris Cocks, executive]

Yes. I think the best comp for looking at how Larian will manage Baldur's Gate 3 is what they've done with their Definity franchise. And that franchise has enjoyed incredible legs, a really long healthy tail. Larian as a publisher tends to be very community friendly. They tend to not discount their products and they tend to do kind of like special editions and special content drops to keep kind of refreshing things with the consumer.

We would anticipate that they would treat Baldur's Gate in a very similar manner. They've been great partners. And I don't think Baldur's Gate 3 will be quite the annuity it was this year. We enjoyed like $35 million, which was pretty healthy. But we will continue to make money off of Baldur's Gate 3 for several years to come.

[Eric Handler, analyst]

Okay. And then I guess, Gena, originally, you expected MAGIC to decline for the year. Given the outperformance seen in the third quarter, do you still think MAGIC declines a little bit for the year?

[Gina Goetter, executive]

Yes. Just given what's going to happen in the fourth quarter. So remember, we've talked about we don't have a comp in the fourth quarter for the Lord of the Rings holiday set. So you're right, MAGIC has outperformed our expectation through the first 3 quarters. But Q4, there is just the reality of set timing in that holiday set that won't be there. But as we look to 2025, that all starts to even our -- even back out.

[Chris Cocks, executive]

Yes, tough to bet against MAGIC. It has a nice long leg. And '25 will be great.

[Operator]

Our next question is from Alex Perry with Bank of America.

[Alexander Perry, analyst]

I guess I wanted to ask a similar line of question on the sort of 4Q implied guide for the Wizards of the Coast. So I think it sort of implies revenue down 20-plus percent in the fourth quarter. I guess, what would drive that? Is that all just the sort of MAGIC shortfall versus the or the rings, holiday set last year? And then can you maybe just talk through the step down in the Wizards op margin guide, which I think implies sort of in the 20s in the fourth quarter. Is that entirely sort of volume deleverage on Wizards?

[Gina Goetter, executive]

Yes, Alex. You nailed it in terms of what is what's causing the pull down in both the top and the margin, it really is related to this MAGIC set timing. When you look at the digital portfolio, it is relatively flat year-over-year. So you had the benefit from Baldur's Gate last year. This year, you have the benefit from Monopoly Go! So when you think of the margin and what's pulling that down, it's all that delev impact of the MAGIC volume.

[Chris Cocks, executive]

Yes. And from a top line perspective, you have 2 things going on with MAGIC. The first is there is a fairly sizable second bite at the Lord of the Rings apple in December of last year. And then the second thing to be thinking about is the timing of our January sets. Depending on what time of year that happens, we have to sell in to our distributors at a different time. So our big kind of remastered set for January is going to be a bit later next year. So we're not going to see that sell in until likely next fiscal year. .

[Operator]

Our next question is from Arpine Kocharyan with UBS.

[Arpine Kocharyan, analyst]

I was just looking at your operating profit margin for year-to-date, it's running north of 23%, I guess, almost 24% to be exact. So then Q4 almost has to be worse than 11% or so for all the pieces to work together after came in -- after Q3 came in so strongly for you kind of not to hit the 19.5%, 20% for the year. And I understand the high-margin gaming would be lower, and there's a huge sort of revenue deleverage there. But like are there any puts and takes? And I guess I'm trying to understand full year implied operating profit guide a little bit better.

[Gina Goetter, executive]

Yes. Got it. Yes, we are within spitting distance of that MAGIC 20% threshold. And to your point, the overall company margin does give back in the fourth quarter. I mean there's 2 pieces for that. One, when you look at our mix of business in the fourth quarter, it goes heavier toy versus Wizards. That's just the nature of it. And that mix creates a bit of a margin drag. And then the second piece, you hit on in your question, it is the deleverage impact that we're seeing play through the Wizards P&L. So those are the 2 pieces that kind of caused that pullback in Q4.

[Arpine Kocharyan, analyst]

Okay. And then I was wondering if you could give us an overall POS read year-to-date? And what that was excluding all the licensing exits for you and the licenses that you gave up what was POS for the quarter? And then can you update us on what you expect for the industry in terms of POS for this year? Seems like you usually include that in the release. And I think, I guess, maybe I didn't see it. It was not in the release this morning. I'm just trying to understand whether there's any change to your expectations?

[Chris Cocks, executive]

Yes. So -- when we think about the -- I'll talk about the market first. So take out building blocks because building blocks is kind of doing different than the rest of the toy industry. When you look at the toy industry ex building blocks, it's effectively down low, maybe on the lower end of mid-single -- low single digits to low mid-single digits. So call it, down 2% to down 5%. Our expectation is the holiday will probably continue that trend. It will be down probably low single digits, maybe on the lower side of down mid-single digits. And that's kind of factored into our full year guidance. And really, our expectations haven't changed materially on that front. In terms of our POS rate, year-to-date, we're down high single digits ex our divested brands. We expect that to get incrementally better in Q4. Just based on the newness on the advertising and the rate of promotions we have, our number of in-store promotions is up quite significantly, particularly at our mass partners. Our share is up inside of our e-commerce partners. I think our products are much better positioned. All you have to do is go into a Target or a Walmart and look at our pricing and look at how we're showing up on shelf. So we expect continued improvement in kind of how we're showing up and how we're selling through.

[Operator]

Our next question is from James Hardiman with Citigroup.

[Unknown Analyst]

This is [ Sean Rooney ] on for James Hardiman. Curious about your expectations for the holiday season and how you characterize retailer sentiment ahead of the holidays. And then Also, could you just talk about what brands you're most excited about for the fourth quarter?

[Chris Cocks, executive]

Sean, I'll start with that, and perhaps Gina will fill in some blanks. So as I talked with our P&A, our general expectation is that the toy industry will be down modestly in Q4 ex building blocks, perhaps with building blocks. It will be roughly flat to maybe down percentage or so. In terms of asking me for my favorite brands, gosh, that's tough. You're going to get me in trouble with all of our teams outside of here. We certainly feel great about how has Play-Doh's been positioned. It had a fantastic back-to-school. We have the new Play-Doh scooter. We have our new Marvel collaboration with Play-Doh, both of which are doing really, really well. I think Beyblade X is starting to take off. We saw a nice early pop with like fan audiences in early Q3, and we're starting to see it take off with like the new animated series and the advertising with kids. That brand did fantastically in Japan when it launched last year, and we expect it to be a nice mover for us this year.

TRANSFORMERS 1 has seen a nice pop since the movie. We expect another nice 1 when the home video and streaming window opens up before the holiday period ends. Marvel is seeing some nice increases, whether it's preschool with [indiscernible] His Amazing Friends or kind of what we're seeing on the core line. There's been some nice content there. our board game portfolio, I think, has rarely been better than it is now. We've got basically products for everyone. And then you know me, I'm a super fan of Wizards, and I love what they're doing with the revisions to fifth edition and some of the new content we have coming out for MAGIC. I'll be in the queue for that Marvel, MAGIC, Secret Lair that's coming out in December. And hopefully, I'll be able to pick up all 5 releases.

[Gina Goetter, executive]

I don't think that answer -- I think you covered all your bases with that answer. I don't think anybody in our team being mad at that answer. I will tell you. I have a lot of nieces and nephews that are under the age of 5 and the biggest hits when I come home and visit them are Play-Doh. All of the offerings in Play-Doh. In fact, I think they're all getting the scooters for Christmas. But don't tell them. Hope they don't listen to the call. And then Marvel and the offering, all the -- from the toys, the role playing all of it on Marvel is a big hit in my household that I visit. But to the first part of your question on the retail sentiment, really unchanged, continuing to get really good support from our retail partners and getting ready for this upcoming holiday. So I may have gotten in trouble with some of our teams, but you had your bases covered.

[Chris Cocks, executive]

Sorry, go ahead, your second question, Sean.

[Unknown Analyst]

If I could also just touch on the remaining cost savings opportunities, maybe looking ahead to next year even. And do you have any expectation on what that split might look like between cost of yield savings and OpEx savings going forward?

[Gina Goetter, executive]

Yes. Good question. As we've moved through this year, a little more than half of our cost savings. Yes, probably about 60% of our cost savings has come from the supply chain with the balance of the savings coming really within our -- all of our managed expense levers that we have. As we move to next year, it probably shakes out more to be like 50-50 across those buckets. We continue to see opportunities within our supply chain. Next year will be the first year that you start to hear us talk about the design to value savings that start to play into the P&L. We've talked about that as a strategy. We really haven't realized any dollar benefit from that in this year. we'll start to realize that next year. We're continuing then to refine our network, both with our suppliers and within our logistics network. So supply chain will continue to be a positive contributor for us next year. And then, of course, on the managed expense buckets, all of those continue to be refined, and we expect another steady year of savings from those.

[Operator]

Our next question is from Kylie Cohu with Jefferies.

[Kylie Cohu, analyst]

In your prepared remarks, you mentioned quite a bit of like innovation at Scopely, and that kind of seems internal to them. But I was wondering if you could dig a little more into that and kind of the future of your relationship with them.

[Chris Cocks, executive]

Yes. So we have a long relationship with Scopely. We do games with them based on [indiscernible], on Scrabble and most recently with Monopoly. We're always talking with them about other aspects of our IP portfolio that we could work together on. And quite frankly, we'd be pretty excited on any future games they want to do. I think they're one of the best partners in the mobile space. And mobile isn't for the faint of heart. It requires a tremendous amount of capital. It requires a tremendous amount of publisher expertise and a huge CRM database to be able to leverage large audiences in free-to-play games. And so I think we count ourselves very lucky to have a partner as a depth of them.

In terms of like the innovation they have, they are doing a lot of really fun events in Monopoly Go! that I think is going to be very sticky and helped to drive new audience engagement, like the latest Marvel collaboration they have, I think, is a great example of that. Just look at what we do on Monopoly on shelf, whether it's Harry Potter or Pokemon or Marvel or Barbie, you can imagine that Scopely has the same scope of opportunities to be able to do that virtually for events. And I think that will be super, super sticky. And then what they're doing with Tycoon Club. Had a great way to kind of engage like your top players, your most -- your stickiest, your most engaged players and kind of shift the business model in a favorable way towards publisher. And that's just good news for us as well because we make our money based on their net platform fees. So if their platform fees are lower, our overall royalty revenue is more positive.

[Kylie Cohu, analyst]

Perfect. Makes a lot of sense. And then a little bit more on the Marvel MAGIC drop happening soon. Obviously, you expect the initial drop to develop pretty much immediately. But kind of curious how the size of this drop compares to the Lord of the Rings set, obviously much smaller, but just anything directional or would be helpful. And then also in the future, could there be a Marvel release that system or size to Lord of the Rings?

[Chris Cocks, executive]

Yes. Yes. So the Secret Lair drops will be in kind of like the you should anticipate it like low millions to mid-single-digit millions of dollars per kind of release is kind of roughly how you should think about it. I think that one of our most successful Secret Lair drops ever would have been like a $7 million or $8 million drop. These are very targeted. They have limited runs, and they tend to be in out within hours. We, at New York [ Comic Con ], announced the Spider-Man set, which will be the first major set we're doing with Marvel. We have multiple sets that will happen over the next, like, 4 or 5 years with Marvel. And you can imagine what a Spider-Man and Spider versus set might be able to do from a revenue perspective. Looking at MAGIC next year, as we look out to 2025, MAGIC is going to be kind of a core part of our thesis in terms of top line growth. We have Final Fantasy, which will come out in June. We have the Spider-Man collaboration, which will come out in the second half of the year. And then we have a Third Universe is Beyond that we haven't yet announced yet, I believe, that I think fans will also really be clamoring for by the end of the year. So the future of MAGIC looks pretty bright. And when MAGIC is healthy, Hasbro tends to be healthy.

[Gina Goetter, executive]

Thank you. That's a good one to end on there.

[Operator]

With no further questions in the queue. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.