Pawtucket, RI —  Hasbro reported financial results for the fourth quarter and full-year 2022.

Full-year revenues of $5.86 billion were down 9% year-over-year, a decline of 6% on a constant currency basis. Operating profit of $407.7 million, or 7.0% operating profit margin, and adjusted operating profit of $922.5 million, or 15.8% adjusted operating profit margin.

Fourth quarter revenues of $1.68 billion, down 17% year-over-year, a decline of 14% on a constant currency basis. Operating loss of $125.7 million, or -7.5% operating profit margin, and adjusted operating profit of $269.2 million, or 16.0% adjusted operating profit margin.

“As we announced previously, our fourth quarter and full-year 2022 results came in below our expectations,” said Chris Cocks, Hasbro chief executive officer. “Despite this, we delivered our first billion-dollar brand in MAGIC: THE GATHERING and another record year at Wizards of the Coast and Digital Gaming, we grew key investment areas including licensing and direct to consumer, and we improved adjusted operating profit margin. We also reduced owned and retail inventory levels from the third quarter peak and we are working to reduce them further this year. Only a few months in, we have made meaningful progress in implementing Blueprint 2.0 with a heightened focus on innovation, data driven investment in key brands and disciplined cost management.”

“For 2023, we have a focused plan to grow share in our key categories and further improve our margins. We are capitalizing on a fantastic entertainment slate, including Dungeons & Dragons: Honor Among Thieves in March and exciting new product launches, while facing a challenging consumer discretionary environment and approximately $300 million in revenue headwinds from exited licenses, brands and markets as well as foreign exchange,” said Cocks. “Our strategy is centered on what makes our brands great – play, supported by compelling storytelling and disciplined brand management.”

“We are making significant headway in the execution of Blueprint 2.0 – including investing in higher return brands and projects, ending low return initiatives, modernizing our organization and lowering our cost base,” said Deborah Thomas, Hasbro chief financial officer. “We forecasted a challenging 2022, and that came to fruition. We also invested to grow, including the $146 million acquisition of D&D Beyond, which was earnings accretive in Q4, and returned $510 million to shareholders through dividends and share repurchase. Our current cash position adequately supports our business needs in the short-term, and operating cash flow is expected to nearly double in 2023.”

Fourth Quarter and Full-Year 2022 Financial Results

Fourth quarter and full-year 2022 net earnings were impacted by the following after-tax amounts, which are excluded from adjusted net earnings, respectively:

• $228.3 million and $231.9 million for the quarter and full-year 2022, respectively, of asset impairments and charges related to the Company’s Blueprint 2.0 strategy focused on fewer, bigger brands. In the fourth quarter 2022 these charges primarily relate to a non-cash charge of $215.2 million related to a partial impairment of POWER RANGERS due to changes in entertainment strategy and plans; and incremental asset charges related to exiting brands, consisting of inventory and asset write offs of $13.1 million.
• Charges of $64.6 million and $89.2 million for the fourth quarter and full-year 2022, respectively, related to severance and other employee charges, consultant fees and the program transformation office associated with the Company’s Operational Excellence program.
• A full-year charge of $21.1 million related to the loss on the sale of non-core businesses within the Entertainment segment.
• $13.9 million and $59.4 million of acquired intangible amortization and $4.0 million and $12.9 million of acquisition-related costs in the fourth quarter and full-year 2022, respectively, in connection with the eOne acquisition.

Fourth Quarter and Full-Year 2022 Brand Portfolio Performance

MAGIC: THE GATHERING had a record year and exceeded $1 billion in revenue for the first time, led by strong growth in tabletop gaming. Each tent pole set release through the first three quarters crossed $100 million in revenue for the first time and the fourth quarter release, The Brothers War, is on track to do so in 2023. Warhammer 40K Universes Beyond Commander deck was reprinted three times to meet robust player demand and Dominaria Remastered released on January 13, 2023 and was supported by initial shipments in the fourth quarter of 2022.

PEPPA PIG and PLAY-DOH, including the holiday feature item PLAY-DOH Ice Cream Truck, were also strong performers in 2022. Hasbro products for the partner brand Marvel portfolio delivered a record year and Hasbro’s product revenue for Star Wars was up year-over-year. Despite growth in select new items, declines in NERF, Hasbro Gaming and the transition out of select licenses contributed to lower revenue.

Company Outlook

Reflecting on the current environment and an expected flat to declining toy and game market in 2023, the Company’s full-year 2023 guidance includes:

• Revenue down low-single digits
• Adjusted operating profit margin expansion of 50 to 70 basis points, excluding Operational Excellence charges and other non-GAAP items1
• Adjusted earnings per diluted share in the range of $4.45 to $4.55
• Adjusted EBITDA approximately flat with 2022 Adjusted EBITDA
• Operating cash flow in the range of $600 to $700 million

1The Company is not able to reconcile its forward-looking non-GAAP adjusted operating profit margin, adjusted earnings per diluted share and adjusted EBITDA measures because the Company cannot predict with certainty the timing and amounts of discrete items such as charges associated with its cost-savings program, which could impact GAAP results.

Given the full-year 2022 results and its progress on implementing Blueprint 2.0, Hasbro updated its medium and long-term outlook with the following financial targets:

• Mid-single digit revenue CAGR through 2027
• High-single digit operating profit CAGR to achieve 20% adjusted operating profit margin by full-year 2027
• Operating cash flow improvement with a target of $1 billion annually by full-year 2025
• $250-$300 million annualized run-rate cost savings by year-end 2025

Targets are based off 2022 results and do not reflect the potential sale of select entertainment assets. The Company plans to update its outlook upon completion of this process if it results in the sale of non-core entertainment assets.

Blueprint 2.0 & Operational Excellence

At the Company’s investor day on October 4, 2022, Hasbro unveiled its Blueprint 2.0. This new consumer-centric approach focuses on fewer, bigger brands, expanded licensing, branded entertainment, and driving high-margin growth in games, digital and direct to consumer.

In support of the Blueprint 2.0, Hasbro announced an Operational Excellence program to deliver $250-300 million in annualized run-rate cost savings by year-end 2025. In 2022, $50 million of run-rate cost savings was achieved with $20 million of actualized savings. The Company remains on track to achieve $150 million in run-rate cost savings for the full-year 2023. Expected cash costs to implement the program are approximately $200 million, of which $15 million was spent in 2022. A $89.2 million after-tax charge was recorded in the full-year 2022 primarily from workforce reductions and related fees associated with the execution of the Blueprint 2.0 strategy.

Fourth Quarter and Full-Year 2022 Major Segment Performance

Full-Year 2022 Segment Commentary & 2023 Outlook

Consumer Products segment revenues decreased 10%.

• Revenue decreased 7% excluding a negative $117.5 million impact of foreign exchange, $92.3 million of which was in Europe.
• The segment’s decline in adjusted operating profit is the result of lower revenue as well as higher allowances, close outs and warehousing costs associated with higher inventory levels. These items were partially offset by savings realized from the Company’s Operational Excellence program within cost of sales and distribution expense, as well as lower air freight, royalties, advertising and incentive compensation expenses.
• For the full year 2023, revenue is expected to decline mid-single digits from full-year 2022 with adjusted operating profit margin improvement of 150 to 200 basis points from the adjusted 7.6% in 2022.

Wizards of the Coast and Digital Gaming segment revenues increased 3%.

• Revenues increased 5% excluding a negative $27.9 million impact of foreign exchange.
• Tabletop gaming revenue increased 12%, more than offsetting the 23% decline in digital revenue due to fewer new digital gaming releases in 2022 versus 2021.
• Operating profit of $538.3 million was down 2% and reflects higher product cost, royalties due to Universes Beyond growth and product development. These items were partially offset by lower costs associated with the digital game Dark Alliance that released in 2021 as well as lower incentive compensation.
• For the full year 2023, we expect mid-single digit revenue growth. Operating profit margin is expected to be in the high 30% range as we continue to build on the Universes Beyond franchise and invest for long-term growth in these valuable brands.

Entertainment segment revenue decreased 17% and was down 12% excluding $65 million of music revenue associated with the business sold in 2021.

• Revenues declined 15%, excluding a negative $21.0 million impact of foreign exchange.
• Film & TV revenue declined 10% reflecting lower film revenues with fewer new releases in 2022 vs. 2021 and the timing of deliveries. TV revenues increased behind strong scripted TV deliveries.
• Family Brands revenue declined 40% primarily due to the delivery of My Little Pony: A New Generation film in the third quarter 2021 which did not have a comparable film in 2022.
• Music and Other declined, including $65 million of revenues associated with the music business sold in 2021.
• Adjusted operating profit decreased 19% on lower revenues. These declines were partially offset by reductions in royalty, advertising and promotion, and incentive compensation expense.
• For the full-year 2023, we expect revenue to increase low-single digits and adjusted operating profit margin is expected to increase slightly from 8.6% in 2022. Guidance will be updated upon completion of the sale process of our non-core entertainment assets.

Capital Priorities and Dividend

During the fourth quarter, Hasbro paid $96.7 million in cash dividends to shareholders. For the full-year 2022, the Company paid $385.3 million in cash dividends to shareholders. The next dividend of $0.70 per common share was previously declared and will be payable on May 15, 2023 to shareholders of record at the close of business on May 1, 2023.

Given the progress made toward reducing debt, the Company repurchased 1.4 million shares of Hasbro common stock at a total price of $125.0 million during the full-year 2022. $241.6 million remains available in the Company’s share repurchase program.

The Company continues to target Debt to EBITDA of 2.0 to 2.5 times. For 2023, progress is expected against this target. Pending the outcome of the sale of non-core film and TV assets, the Company anticipates prioritizing the sale proceeds toward paying down debt. The Company remains committed to maintaining our investment grade rating.

Hasbro is a global branded entertainment leader whose mission is to entertain and connect generations of fans through the wonder of storytelling and exhilaration of play. Hasbro delivers engaging brand experiences for global audiences through gaming, consumer products and entertainment, with a portfolio of iconic brands including MAGIC: THE GATHERING, DUNGEONS & DRAGONS, Hasbro Gaming, NERF, TRANSFORMERS, PLAY-DOH and PEPPA PIG, as well as premier partner brands.

HAS-E

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