Hasbro - Q2 2023
August 3, 2023
Transcript
Operator (participant)
Good morning, and welcome to Hasbro's Q2 2023 earnings conference call. At this time, all parties will be in listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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 Ms. Kristen Levy, Senior Manager, Investor Relations. Please go ahead.
Kristen Levy (Senior Manager of Investor Relations)
Thank you. 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. We will take your questions. Our earnings release and presentation slides for today's call are 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 Q&A 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. Today's guidance assumes we retain the non-core entertainment, film, and TV business, notwithstanding the agreement we just entered into with Lionsgate to sell this business. That transaction is subject to customary closing condition and regulatory approvals. Following closing of that transaction, we plan to update our guidance.
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 (CEO)
Thanks, Kristen, and good morning. Today, I'm pleased to announce that Hasbro has entered into a definitive agreement to sell our eOne Film and TV business to Lionsgate for approximately $500 million, consisting of cash of $375 million and the assumption of production financing loans. This purchase will include a team of talented employees, a content library of nearly 6,500 titles, active productions for non-Hasbro-owned IP, like The Rookie, Yellowjackets, and Naked and Afraid franchises, eOne's Canadian film and TV operations, and the eOne unscripted business, which will include rights for producing Hasbro-based shows like Play-Doh Squished. We expect the transaction to complete by the end of 2023. Hasbro will use the proceeds to retire a minimum of $400 million of floating rate debt by the end of the year and for other general corporate purposes.
Hasbro Entertainment will be the new marquee for our ongoing entertainment efforts after the sale closes under the leadership of Olivier Dumont, the current head of eOne Family Brands. Hasbro Entertainment's mission is to develop, finance, and produce entertainment based on the rich vault of Hasbro-owned brands. We'll bring to life new original ideas designed to fuel all areas of Hasbro's blueprint, including toys, publishing, gaming, licensed consumer products, and location-based entertainment. We'll retain a focused team of creative development and business affairs experts to shepherd the 30-plus Hasbro-based projects in development, working with the best studios and distribution platforms in Hollywood, including ongoing development of the Transformers and G.I. Joe franchises, Play-Doh, D&D, Magic: The Gathering, and our board game portfolio.
As part of the sale, we expect to move to an asset-light model for future live-action entertainment, relying on licensing and partnerships with select co-productions like our previously announced Transformers One animated film and the D&D live-action television series, both with our partners at Paramount. The sale of eOne is another important milestone in our transformation at Hasbro. Last year, we articulated a plan to turn around Hasbro, driving growth in fewer, bigger, more profitable brands, improving our consumer focus, execution, and innovation, and building our Operational Excellence to fuel our bottom line and create sustainable performance. At the highest level, it's a plan about recentering Hasbro on what has helped us create one of the most valuable portfolios of brands in toys and games, the timeless power of play.
I'm pleased to report in Q2, we've made substantial progress against these goals.
Hasbro delivered better than planned operating results for the Q2, including revenue of $1.2 billion and adjusted operating profit of $137 million, which includes a $25 million charge we took for the Dungeons & Dragons: Honor Among Thieves feature film. The movie is among the best-reviewed films of 2023 and has performed well in streaming, the box office didn't meet expectations. POS in the quarter was at or ahead of market, when factoring exited businesses, was ahead of market. Through the first half, Peppa Pig, Transformers, Play-Doh, D&D, Magic: The Gathering, and Hasbro Games have all grown point of sale. According to Circana, the G9 global toy and game market declined 7% through year-to-date June.
We gained share among the G9 in three of our five focus categories: action figures behind growth in Transformers, arts and craft with Play-Doh, and in games behind Monopoly. Our direct fan-focused business, Hasbro Pulse, increased point of sale by 54% in the quarter. Transformers: Rise of the Beasts is one of the top box office performers of the year and has driven an 83% improvement in Transformers POS since its release. Magic: The Gathering launched what we believe will be the biggest release in our history with The Lord of the Rings: Tales of Middle-earth. D&D generated nearly 2 million new registered users on D&D Beyond through the first half of the year. Our licensing business continues to grow, including the release of one of the biggest mobile games in the last five years, MONOPOLY GO!
From our partners at Scopely, which, since its debut, has been number one in downloads in 87 countries on the App Store and 49 countries on Google Play. Our operational excellence efforts have driven over $84 million of cost savings year to date, money we are using to both fund inventory reduction and clearance efforts and key growth initiatives like direct, data analytics, and digital. Speaking of inventory, our sales teams have been busy reducing our owned and operated inventory in our toys and games segment by 24% year over year, and our retail inventory by 16%. While headwinds and uncertainty continue to exist in the toy and game category as a whole, a better than planned start to the year so far for Hasbro sets us up for success in the back half.
Gina will share more in her remarks, but at a high level, we're maintaining our guidance for our consumer products segment and raising guidance for our Wizards of the Coast and digital games segment. Due to the writers and actors strikes and underperformance of D&D: Honor Among Thieves, we are lowering our guidance for entertainment. Magic is on track for a record Q3, with favorable set release timing buoying results. D&D should have a strong second half, powered by excitement for the upcoming PC and console releases of Baldur's Gate 3 from our partners at Larian. Furby is already a hot seller, with initial allocations selling out in under 72 hours.
Most of our toy and game innovations have only just begun to hit shelves, including the new preschool line for Lucasfilm's Star Wars: Young Jedi Adventures, our new AR game, Twister Air, new blaster innovation with Nerf Double Punch, hot new game crossovers like Barbie Monopoly. With much improved inventory levels and the bulk of our inventory management efforts phasing down in Q3, we see an opportunity for meaningful margin improvement as the year progresses, particularly as we go into the Q4. Net, we exit our first half with a solid quarter and positive operating indicators for our second half in our core segments. Our inventories are greatly improved, we are growing share in key brands, we are making the improvements necessary to our supply chain and cost structure to see sustained operating margin growth over the mid and long term.
We also are making the necessary choices to rightsize our entertainment footprint. Strong brands with quality, innovation, and execution will be more important than ever in a more unpredictable environment. That's one of the reasons I'm excited by the potential of our new leadership team, who are already bringing a more disciplined approach to our operations and a palpable step-up in product innovation. We continue to move up and to the right on our change curve, evolving our cost savings initiatives to a continuous and relentless improvement model. Our supply chain is becoming a competitive advantage, with costs back down to near pre-pandemic levels and positioned favorably versus competition. We are seeing momentum with key retailers. Our digital portfolio is tighter and making rapid strides, and we are reinventing our approach to data analytics, product development, and long-term innovation.
Paired with our approach to focused entertainment through partners that both inspires and connects to a tight business plan and economic engine, we are positioned well for the medium to long term. I'd now like to turn over the call to Gina Goetter, our Chief Financial Officer. Gina?
Gina Goetter (CFO)
Thanks, Chris, good morning, everyone. As Chris laid out, we delivered a solid quarter, with revenue coming in ahead of expectations and proof points emerging across several of our transformation initiatives. We also announced the sale of the eOne Film and TV business, a step that simplifies our strategy and our focus on toys and games. As we look to the quarter, total Hasbro revenue of $1.2 billion was down 10% versus last year, as we continue to see normalization of inventory, lap the exit of certain licensees and markets within the consumer products segment, and we had fewer planned releases for Wizards of the Coast. The entertainment segment revenue was down 3%, primarily due to the exit of non-core businesses in 2022. Excluding these divestitures, the Film and TV and Family Brands businesses were up 5% versus prior year.
Adjusted operating profit of $137 million was down 43% versus last year. In addition to the revenue decline, we incurred higher inventory closeout costs as we continue to rightsize inventory back to healthier levels. Profit was also negatively impacted by an impairment taken on Dungeons & Dragons: Honor Among Thieves, as a result of box office results coming in below expectations. Adjusted earnings per share of $0.49 was 57% below last year due to the factors noted, and includes unfavorable impacts related to taxes and interest expense. The adjusted results exclude the impact of a $296 million film and TV impairment. Through the Q2, the ongoing writer and actor strikes have had minimal impact on our results. As the strikes continue, our 2023 outlook for entertainment has come down.
The adjusted results also exclude incremental costs attributed to the Operational Excellence program and amortization associated with the eOne acquisition. Looking at year-to-date results, revenue of $2.2 billion was down 12% below last year, driven by declines in the Consumer Product segment and planned timing shifts across entertainment. Wizards segment revenue is down slightly versus prior year as a result of launch timing and having one fewer release in the front half of this year compared to 2022. Adjusted operating profit of $184 million was down 52% versus last year, as we continued to incur higher costs associated with clearing inventory, as well as absorb the impact from the D&D film impairment. Year-to-date adjusted EPS is $0.49, driven by the factors noted above.
Looking at our brand performance, our franchise brands were down 5% in the quarter and year-to-date. These brands represent our biggest and most profitable brands and are just over 60% of our revenue. Within franchise brands, we delivered significant Q2 revenue growth in Transformers and Dungeons & Dragons, driven by the uplift from the movie releases. Additionally, Peppa Pig grew as a result of growth in entertainment and digital gaming. Our partner brand revenue is down 21% for the quarter. More than 60% of the loss is a result of the licenses we exited at the end of last year. Sales of Hasbro products for Spider-Man by Marvel are up with an over 100% increase in POS since the release of Spider-Man: Across the Spider-Verse, and further supported by the preschool series and new product releases.
Partner brands continue to play a vital role in our portfolio for kids, fans, and retailers around the world. Across our portfolio brands, the declines are driven by the reprioritization of investment to support the franchise brands, as well as discontinuances across the retail footprint. However, one of our relaunched portfolio brands, Furby, is off to a promising start. Looking at operating margin, Q2 adjusted operating margin of 11.3% was 670 basis points below last year. The single biggest impact in the quarter is the volume decline and mix of business. Through the first half of the year, we prioritized cleaning up the portfolio and reducing inventory levels across the CP business, resulting in higher than normal closeout costs.
Also, as planned, we had one less Magic release within the Wizards segment, which created an unfavorable mix and fixed cost absorption impact.
Additionally, as we shifted to leverage licensed IP within Wizards, we incurred higher royalty expense, resulting in a 1.7 margin point loss. Momentum is accelerating on our cost savings program, and year-to-date, we have accumulated $32 million of gross cost savings within supply chain and an additional $52 million of gross cost savings within operating expense. The combined $84 million of gross savings are more than offsetting cost inflation and have allowed us to reinvest back into the business to support higher levels of marketing spend, fund our inventory reduction efforts, and fuel key strategic initiatives required to deliver our long-term targets.
Cumulatively, since we began the savings program in 2022, we have reduced our cost base and delivered gross savings of $104 million, and we remain on track to deliver our in-year savings goal of $150 million. Finally, to round out the margin drivers, we had a negative 280 basis point impact in other items, which includes the $25 million impairment on the D&D film. As Chris mentioned, we made significant progress in lowering inventory levels. We reduced total owned inventory 16% versus prior year, primarily driven by a 24% reduction in the consumer product segment inventory. We expect to see inventory reductions through the first part of Q3 and stabilizing to more normalized levels by the end of the year.
From a retail inventory perspective, their inventory was also down 16%. The lion's share of the reductions are behind us. Looking more closely at segment performance within the quarter, Wizards of the Coast and Digital Gaming segment revenue was down 11%. Overall, tabletop gaming revenue, which includes both Magic and D&D, declined 17% given release timing. The decline in tabletop was partially offset by 33% growth in digital gaming, including the addition of D&D Beyond, which we acquired last May, and growth in Arena. Segment margins declined in line with expectations, driven by higher royalty expense and a step-up in investment to support future brand growth and product development. Moving to the consumer product segment, total CP revenue was down 11% in the quarter, driven by declines in POS trends and the focus on clearing inventory.
Looking at the key drivers for the quarter, five points of the decline was driven by planned license exits. Another two points of decline was driven by toy and game volume, given the broad category trends and retailers taking a more focused approach with their inventories. four points of decline came from pricing and mix, driven by additional closeout costs as we work through higher inventory levels. Finally, we achieved one point of growth from licensed consumer products as we re-energize focus on leveraging our IP across categories. In the quarter, the entertainment segment declined 3%, primarily due to business exits late last year.
This was partially offset by 3% growth in film and TV behind scripted TV growth, as well as film revenue from Dungeons & Dragons: Honor Among Thieves. In addition, Family Brands revenue increased 14%, driven by content sales, including for Peppa Pig.
The adjusted operating loss for the Q2 includes the $25 million Dungeons & Dragons: Honor Among Thieves production asset impairment charge. Today, we announced the sale of our eOne Film and TV business to Lionsgate. Overall, the business that we're selling represented approximately 85% of the revenue and just over 60% of the adjusted operating profit of the total entertainment segment last year. Wrapping up with Hasbro, Inc., we delivered $119 million of operating cash year-to-date, which is $29 million behind last year, driven by lower receivables coming out of 2022. Through June, we repaid $91 million of long-term debt and spent $112 million on capital expenditures, led by investments in Wizards of the Coast for future digital gaming releases.
We've returned $194 million of capital to our shareholders via dividends. In the quarter, we booked a 26.3% underlying tax rate, which compares to 21.6% in Q2 of last year. The higher rate is driven by our entertainment business losses and higher withholding taxes, plus a shift in the geographical mix of income. Additionally, we had $4.8 million of additional interest expense due to higher interest rates. Turning to our 2023 guidance, the outlook across the consumer product segment remains on track, and Wizards of the Coast segment is better than original expectations. For the entertainment segment, we are updating guidance to reflect the reality of the writers and actors strikes on our eOne Film and TV business.
This updated guidance assumes film and TV is included for the entire fiscal year, and we will update once the close is complete. Based on this, we now expect total Hasbro Inc. revenue down 3%-6%. As we look at the three primary segments, this guidance continues to assume that the CP business will be down mid-single digits, which is consistent with our initial outlook. We are planning for POS trends to continue stabilizing in the back half of the year, and this, coupled with stronger execution, will result in modest back-half revenue growth. We now expect that Wizards of the Coast will deliver high single-digit revenue growth compared to our original guidance of mid-single digits. We are confident in the back-half releases slated for Magic, and digital licensing should also be supported by the continued success of MONOPOLY GO!
The upcoming release of the AAA role-playing game, Baldur's Gate 3. Finally, for entertainment, we are now expecting revenue declines of 25%-30%, which incorporates the impact of the writers and actors strikes on production deliveries in the back half of the year. Adjusted operating margin is now expected to be up 20 basis points-50 basis points versus last year's adjusted operating margin. The margin outlook for CP and Wizards of the Coast are the same or better than our previous guidance. The guidance reflects unfavorable changes in entertainment given the strikes, as well as the D&D impairment. This margin guidance continues to expect $150 million of in-year cost savings, driven by our Operational Excellence program, as well as assumes that the cost to clear inventory reduces in the back half of the year.
Despite the headwind from the entertainment segment, we continue to expect 2023 adjusted EBITDA to be relatively flat to prior year. Based on our current forecast, we continue to expect to generate $600 million-$700 million of operating cash flow. From a capital allocation standpoint, our priorities are to invest behind the business, pay down debt, and return excess cash to shareholders via dividends. We expect to use the cash generated from the sale of the eOne Film and TV to pay down debt, which will accelerate the reduction of our overall debt by a minimum of $400 million and advance our progress towards achieving our 2.5x long-term leverage target...
In terms of earnings per share, despite adjusted EBITDA guidance remaining unchanged, the Film and TV business has created additional volatility, impacting below-the-line items, including interest expense and tax rates. Through the Q2, Film and TV has created an approximate $0.50 negative impact on earnings per share, based on our updated outlook, we anticipate an additional $0.10-$0.20 negative impact on the full year. Given this, as well as the divestiture, we are withdrawing total Hasbro Inc. earnings per share guidance for the year, and we'll revisit reintroducing the metric once we have closed the transaction. Our remaining segments are continuing to grow their EPS contribution versus original expectations and versus last year, behind strong Wizards growth and cost savings momentum.
I am three months in at Hasbro, and every day I am more excited about the opportunities ahead for this amazing company. We have a lot of work ahead of us to deliver the year, but we are making progress in gaining momentum, with today's announcement of the sale of the eOne Film and TV business being the latest milestone. With that, I'll turn it back over to Chris to wrap up.
Chris Cocks (CEO)
Thanks, Gina. While our overall guidance is down for the year, the puts and takes are contained in a segment that we have found a better home for and a company adept at driving value. Our core business is making tangible progress, and while the next six months will present entertainment-related headwinds, we will emerge a more focused, more profitable, and more predictable business. This will enable us to continue to fund our category-leading dividend, improve our balance sheet health, and drive value for our shareholders, partners, and fans of all ages. We'll now pause to take questions.
Operator (participant)
Thank you. At this time, we'll be conducting a Q&A session. If you'd like to ask a question today, please press star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may pressstar two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. So that we may address questions from as many participants as possible, we ask that you please limit yourself to one question and one follow-up. One moment, please, while we poll for questions. Thank you. Thank you. Our first question is from the line of Andrew Uerkwitz with Jefferies. Please proceed with your questions.
Andrew Uerkwitz (Managing Director)
Hey, great, thank you. Good luck joining, Gina. It's great to have you on board. The increase in guidance around WotC, could you go through the puts and takes there? Is that driven largely by Magic, better expectations on Baldur's Gate, now that it launches today, or MONOPOLY GO!? Just go walk through some of the changes there.
Chris Cocks (CEO)
Yeah, sure thing. Thanks, Andrew. You know, at a high level, I'd say it's a bullishness around Magic and good progress with our digital licensing portfolio, Baldur's Gate and MONOPOLY GO! included. I'll turn it over to Gina to go through more details.
Gina Goetter (CFO)
Morning, Andrew. Thanks for, thanks for the welcome. I don't know that I have additional color to add. I do think that our performance in the first part of the year overall for WotC in the digital segment has been on our expectation. We're seeing some good progress with The Lord of the Rings. We're really excited about that launch. You know, that came out in June, so the bulk of the revenue gain will be a pickup here in, in Q3. As Chris said, the, the launches that we've got scheduled for the back half of the year, we're feeling really good about.
Chris Cocks (CEO)
Yeah, I should note that The Lord of the Rings is not, it's not a standard set. We think it's in more of an evergreen set that will have a longer tail. You know, our in-year expectation is that within seven months of it releasing, it'll be the number one set of all time for Magic. It should cross $200 million before the end of the calendar year. The last set-
Andrew Uerkwitz (Managing Director)
Got it.
Chris Cocks (CEO)
... that did that was Modern Horizons 2, and it took about two years for it to do that.
Andrew Uerkwitz (Managing Director)
Got it. That's, that's super helpful and great color. I appreciate it. Just kind of thinking about the digital strategy going forward that sits within Wizards of the Coast. Could you give us an update on your thoughts there? eOne's gone now. We can kind of start focusing on the video games and segments. You, you have some internal studios, so could you just kind of give us an update on where everything stands and what the primary driver is going to be there, you know, one year out, three years out, maybe?
Chris Cocks (CEO)
Yeah. You know, at a high level, I'd, I'd say it's a balanced strategy between working with licensed partners, which is very high profit for us, and we've been fortunate to have some fantastic partners like Scopely and Larian, who we think are making knock-it-out-of-the-park games, and then patiently investing on a milestone basis with our own internal studio development and publishing capability development. You know, when you look at a game like Baldur's Gate 3, you know, I view that as the equivalent of a blockbuster movie release. You know, just to put it in perspective, you know, we think Baldur's Gate 3 has the potential to be a game of the year contender. It will engage millions of highly targeted fans and be highly accretive to the D&D brand.
Just to kind of put it in financial perspective, we will likely make more money on Baldur's Gate 3 than we have made on all of our film licensing for the last five to 10 years combined. It's not only a great brand win, it's a great financial win for us. I think it's a heavy focus of the company moving forward. You know, we purposely stated in this release that we're a leading toy and game company. We are squarely focused on that, and I would say the emphasis is on the gaming part of that.
Andrew Uerkwitz (Managing Director)
Got it. That's really helpful. I appreciate it. Thanks, Chris.
Chris Cocks (CEO)
No worries.
Operator (participant)
Our next question is from the line of Arpine Kocharian with UBS. Please proceed with your questions.
Arpine Kocharian (Managing Director)
Hi, good morning, and thank you for the question. I was wondering if you could help us bridge margin guidance, down about 25 basis points at midpoint, but then what you want to be up is actually up, and what you want to be down is actually down. You have high margin gaming revenue outlook up, but lower margin entertainment segment revenue actually lower. I know you mentioned margin for Wizards is actually unchanged or better, then incremental headwind from impairment charges, I guess. Is there anything else that you would point out in bridging that?
Gina Goetter (CFO)
No, Arpine, good morning, this is Gina. I think you've got it square on. Our margin guide down, you know, we were a little bit more bullish starting the year at 30 basis points to 60 basis points, and now we're saying, you know, 20 basis points to 50 basis points. That is really all about the impairment that we took within D&D and what is happening within the film and TV segment itself or the broader entertainment itself. When we look at our core business, our toys business, our games business, those, that margin profile is healthy and actually a little bit better than what we expected it to be. We're seeing some nice momentum in our cost savings initiatives, and you can see that in the margin bridges that we provided.
You can see that starting to pull through the P&L, and that really starts to accelerate as we look to the back half of the year. The call down in margin, all about entertainment, all about what happened with the D&D impairment, and our core businesses that we are keeping are doing quite well.
Arpine Kocharian (Managing Director)
That's very helpful. Thank you, Gina.
Gina Goetter (CFO)
Yep.
Arpine Kocharian (Managing Director)
I know you aren't giving EPS guidance at this point, but you mentioned $0.50 of eOne film, so EPS headwind and then additional $0.10-$0.20 of headwind. Could you maybe go over high level, you know, just basic math? I'm calculating close to no more than $0.25 in operating profit that you're giving up with this sale, and then that's obviously partially offset by run rate, interest expense, cost savings down the road. Maybe if you could kind of point out whether that thinking is correct, high level, and then if you could break down that $0.50 a little bit more.
Gina Goetter (CFO)
Sure. I will try my best to answer that math question. Our guidance that we originally had given was $4.45-$4.55, and what we communicated was that to date, so through the first six months, we've had a $0.50 headwind by the entertainment segment. What we anticipate in the back half of the year is that's going to be another $0.20. All in our earnings per share guidance, you know, if we were continuing to give guidance, would come down by $0.70, all in the film and TV, all in the entertainment segment. Again, our core business, toy and game and, you know, the, the digital part of our business, that is actually performing ahead of expectation.
There's some puts and takes within tax and interest expense. That, that kind of nets against that. The call down in earnings per share, all in entertainment.
Arpine Kocharian (Managing Director)
Super helpful. Thank you.
Gina Goetter (CFO)
Yep.
Operator (participant)
Our next question is from the line of Jamie Katz with Morningstar. Please proceed with your questions.
Jamie A. Katz (Senior Equity Analyst)
Hey, good morning. I know you guys are not really guiding on the sale of eOne, but I'm hoping that you can frame the size of what will be left after these assets are sold. Will it be, you know, 10% of the entertainment business? You know, with that sale, is there any reason that cost of goods sold and program production costs wouldn't go back closer to 2019 levels, just as we think through sort of the math of how that, how that segment has impacted the overall P&L? Thanks.
Gina Goetter (CFO)
Sure. Morning, Jamie. In the slide deck that we provided, we put a chart in there to try to dimensionalize the total entertainment segment and then the piece of the business that is being divested. About 85% of the segment is going with the sale, in terms of its revenue and, you know, the balance of 15% is staying with us, and it will be embedded in the new kind of view of entertainment and of how we're approaching it moving forward. In terms of how to think about production costs, I'd have to go back to where we were in 2019 to see precisely if we're up, down, or sideways from that.
Yes, you can assume, you know, the eOne business was spending, you know, $500 million-$600 million in production dollars. We will not be, or they will not be spending that, or we will not be spending that amount of money moving forward.
Chris Cocks (CEO)
We'll be up versus 2019-
Jamie A. Katz (Senior Equity Analyst)
Okay. Got it.
Chris Cocks (CEO)
... simply because we continue to invest in some co-productions with Paramount, like we're doing with Transformers One, which is a new animated film that'll come out next year. Then we're also doing production for things like a D&D TV series. Now, that is a cost-plus model that Paramount is fully funding, so we get the production margin from that, plus, like, a licensing fee for being an IP owner on something like that. Then also, we're retaining the eOne Family Brands portion of the purchase, which is a big value portion of the purchase, with big brands like Peppa Pig, and so that's incremental to 2019 as well. As Gina states, it's far lower than the run rate we've been on for the last several years.
Jamie A. Katz (Senior Equity Analyst)
Right. Then I think there was some prepared remark that said there was momentum with key retailers, so any further color on that would be helpful. Thanks.
Chris Cocks (CEO)
Yeah, we won't name them by name, but certainly, you know, it's nice to have clean inventories and inventories reduced. You know, if you look at, like, our top three or four retailers, I feel pretty good about where we're going with them. Some of them are taking still a pretty aggressive stance on inventory management, and so, you know, we're working with them. Others are really leaning in and seeing an opportunity to build, share, and have great, kind of on-shelf, availability. You know, e-commerce continues to gallop forward and consume share in the category. You know, we just had a great Amazon Prime Day. You know, we have had really good discussions with our major retailers around top toys for the holiday.
You know, I'm cautiously optimistic that you're gonna see Hasbro gain share in terms of what our key retailers announce, and we're already starting to talk to them about 2024 and 2025. You know, with our new management team, I think we've tightened up the innovation muscle quite a bit, and we'll have some momentum going into that year, particularly as we see what folks like Tim Kilpin, who's our new leader of our toy team, has up his sleeve in terms of new product innovation.
Jamie A. Katz (Senior Equity Analyst)
Thank you. Very helpful.
Operator (participant)
Our next question is from the line of Eric Handler with Roth MKM. Please proceed with your question.
Eric Handler (Managing Director, Media and Entertainment Analyst)
Good morning, and thanks for the question. I believe you said that Hasbro Pulse put POS was up 54%. I wonder if you could talk a little bit about that business and, and, and size it, and talk about some of the growth plans for that.
Chris Cocks (CEO)
Yeah, sure. Good morning, Eric. Nice to talk. Hasbro Pulse, as we talked about back in October at our Investor Day, direct consumer is important to us. It's a great way for us to learn from our consumers, see how they shop, see what they want. Our initial efforts are very focused on kind of like that dedicated fan segment, both what we do for Secret Lair, with what we do at Wizards of the Coast, what we do with kind of the D&D fan, with D&D Beyond in terms of digital goods. Hasbro Pulse is more about kind of like that fan economy segment. That's performed super well. It's a great partnership with, you know, our Disney, you know, business.
There's a lot of Star Wars that goes through there. There's a lot of Marvel. There's a lot of super high-end Transformers and Hasbro-owned items, like the Robosen Auto-Transforming Optimus Prime, that we released last year, and an auto-transforming Grimlock, that we just recently announced, and a great opportunity for us to sell high-end items. You know, I would scope the business right now in the kind of the $100 million-$200 million range. You know, I think we see significant upside for that. You know, call it, you know, potentially a TAM or a TAM opportunity for, you know, 2x, maybe 2.5x that over the next couple of years.
As we start to build critical mass and capabilities in that segment, I think you'll also see us evolve our perspective on what we could do there. We'll start with fan focus, and then we'll evolve that and hopefully start going out in concentric circles over time, respecting the fact that we have a lot of great third-party retailer relationships, and making sure that we model kind of the mix of products appropriately.
Eric Handler (Managing Director, Media and Entertainment Analyst)
Great, that's helpful. Also, I wonder if you could just talk about, you know, retailer sentiment, as you go, you know, as orders start coming in for the Holiday Season, and how do you think retailers, you know, are feeling right now as they think about, you know, the last month and a half of the year?
Chris Cocks (CEO)
Well, I think it depends on the retailer. You know, we have a couple of retailers who are really leaning in and see a share building opportunity. You know, we have a retailer or two who are taking a cautious view towards consumer discretionary as a whole and aggressively managing their inventory. You know, I think a little bit of an over-under on our guidance moving forward and why we're not raising our guidance in consumer products, is just making sure that we understand where those retailers are ultimately going to position. I definitely think Q4 is gonna be a more traditional Q4, kind of a 2018, and 2019. It's gonna be very end-of-the-quarter focused. You know, I think Black Friday is gonna be important.
I think the lead-up and the drumbeat into Christmas is gonna be important. Also, you know, I think a array of bullishness that we have in the quarter is we have basically an extra couple of days of shopping prior to Christmas. For our fiscal year, we have an extra week, because we ended our fiscal year last year, I think, on December 26th. We have a full extra week of potential shopping, which is probably about $60 million-$70 million of incremental POS.
Eric Handler (Managing Director, Media and Entertainment Analyst)
Great. Thank you.
Operator (participant)
Our next question is from the line of Fred Wightman with Wolfe Research. Please proceed with your questions.
Fred Wightman (Director)
Hey, guys. I just wanted to come back to Wizards, and if we think back to the Investor Day last fall, and I totally recognize a lot has changed, but it felt like D&D was a big piece of the plans to double the Wizards business. If we just think about the film impairment and the softer box office, does that put those targets at risk, or is there enough traction and momentum in some other areas to offset that?
Chris Cocks (CEO)
No, I mean, Good morning, Fred. I would say, you know, the underlying thesis of our D&D business was all about digital. You know, to me, entertainment's a kicker. It helps to enable broader audiences exposure to what's traditionally a mid-core to hardcore gaming brand. What digital allows us to do is to kind of take that tabletop role-playing game TAM that we have in the world, which is, you know, probably about 80 million people who participate in those hobbies and frequent that kind of channel, and take our brand, like D&D, to 800 million people who play role-playing games.
So, you know, I think Baldur's Gate 3 is just the first of several new digital initiatives you're gonna see from us, that span how we can try to transform tabletop role-playing gaming to an even richer kind of theater of the mind experience, to, more traditional video games from us and partners like Larian.
Fred Wightman (Director)
Makes sense. Then on the supply chain side, it feels like you guys have really emphasized that for the past few quarters. I'm wondering if you could just frame sort of where you see the supply chain today versus where you think it could be, then maybe what that ultimately means for the consumer products margin over the next few years.
Gina Goetter (CFO)
Sure. Morning, Fred. I would say we're making really good progress within the supply chain, and I know that the company has talked about that in previous quarters. This quarter especially, you can see the benefits starting to flow through within logistics. A lot of the focus from the team has been around our logistics network, how we're planning for inventory, how we're our order patterns, working with our retailers, all around inventory and order management. You can start to see that really play through through the cost savings. We expect that to continue to accelerate as we move into the back half of the year. The overall logistics environment is continuing to moderate. That will help us as well.
Not only do we have a lot of efforts underway in that space, but the overall environment is much more calm than it has been compared to the previous two years. I think our focus moving forward will be there, as well as working with all of our partners and getting a little bit closer to the operation with all of our manufacturers. That will provide another opportunity for us, more so in 2024 than in 2023.
Fred Wightman (Director)
Makes sense. Thanks a lot.
Operator (participant)
Our next question is from the line of Jason Haas with Bank of America. Please proceed with your questions.
Jason Haas (VP, Equity Research - Retail Hardlines)
Good morning, and thanks for taking my questions. I want to follow up on some of the numbers that were given out earlier in the year regarding some of the headwinds you were facing for the consumer products business. I recall the expectation, or I think at the beginning of the year, you'd said that there was $135 million of excess retail inventory. I was curious, apologies if I missed it, but how much of that have you worked through so far this year?
Chris Cocks (CEO)
Yeah, so I don't have a specific number to quantify the $135 million, but, you know, our retailer inventory is down 16% year-over-year. I think, you know, we feel like our retailer inventory is at a, a pretty productive level. You know, I would say that through the balance of the year, our retailer inventory will end the year down, but probably not 16% down. Our own inventory, we still are a little bit elevated versus what we would typically be, but we are down quite a bit versus 2021, about 24% or so. I think we'll end the year at around that level, both for consumer products and for Wizards of the Coast.
That'll get us to something that's more consistent to, like, what we ended at 2021 and, and, and within, within range of a more traditional level.
Jason Haas (VP, Equity Research - Retail Hardlines)
Got it. That, that's helpful. Another figure, I think it was tied to that, but it was, you, you had said that there was $300 million of headwinds. I think it was from exited licenses, FX, and then also that inventory. The, the expectation was about you'd see about 60% of that headwind in the first half. I was curious if that so far, has materialized as you had expected?
Chris Cocks (CEO)
Yeah, you know, if you look at our POS for the first half of the year, you know, we are down, you know, high single digits in POS, but when you take out those exited licenses, we're down low single digits. And, you know, as we get into the back half of the year, the impact of those licenses lessen because we were, you know, our sell-in was a little heavier as a percentage in the front half of the year and as we were getting ready to kind of exit them, and our retailers were kind of taking their inventory positions down to prepare for other master toy licenses to enter. It just makes, it just makes sense that way.
Gina Goetter (CFO)
Jason, just to add some color on the actual number, I would say of that $300 million, we're about halfway through that, with the balance to come in the back half.
Jason Haas (VP, Equity Research - Retail Hardlines)
That's great. Thank you.
Operator (participant)
Thank you. Our next question is from the line of Stephen Laszczyk with Goldman Sachs. Please proceed with your questions.
Stephen N. Laszczyk (VP, Equity Research Analyst)
Hey, great. Thank you. maybe for Gina, with this being your first earnings call since getting settled in, I was wondering if you could maybe talk a little bit more about your framework for thinking through leverage and capital allocation on the go forward, especially with eOne, the sale of eOne now behind us. In particular, I'd be curious if you see any incremental opportunities, on the investment or capital returns front over the next few years. Thank you.
Gina Goetter (CFO)
Sure. Morning, Stephen. Yeah, the, the sale of eOne absolutely helps us in terms of getting, getting down to our leverage target. We will use the, the majority of the proceeds from that sale to pay down our floating rate debt and start getting the balance sheet in a healthier position. As we move forward, as we think about capital allocation, you know, first and foremost, our priority is to invest back into the business. Our second priority is then to keep cleaning up that balance sheet and getting that leverage, leverage ratio down. Then the third piece is, is to continue giving money back to our shareholders. Our primary vehicle has been dividends. We've paid out dividends through the first part of the year. We expect to continue paying out dividends in the back half of the year.
As we turn the corner into 2024 and beyond, I think we will most likely add share repurchases back into the mix of capital allocation, but for now, in the near term here our first three levers are invest, pay down debt, and then give back money via dividends.
Stephen N. Laszczyk (VP, Equity Research Analyst)
Got it. Then for Chris, I'm not sure if you've given this metric before, but since you mentioned it around Baldur's Gate, I was wondering if you could remind us how much money you've made in film licensing over the last five or 10 years? Any approximate sizing would be, would be helpful.
Chris Cocks (CEO)
We would have to get back to you, Stephen. I don't have that off the top of my head. It's not tremendous.
Stephen N. Laszczyk (VP, Equity Research Analyst)
Understood. Thank you.
Operator (participant)
Thank you. At this time, we've reached the end of the Q&A session, I'll turn the call back over to Kristen Levy for closing remarks.
Kristen Levy (Senior Manager of Investor Relations)
Thank you for joining the call today. The replay will be available on our website in approximately two hours. Additionally, management's prepared remarks will be posted on our website following this call. Hasbro management will be participating in the Goldman Sachs Communacopia and Technology Conference on September 6. Hope to see you there.
Operator (participant)
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.