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Hasbro beat Q2 expectations with strong digital and Wizards growth, but Consumer Products weakness, inventory buildup, and tariff headwinds remain key risks despite raised guidance.

# Hasbro Q2 FY2025: Digital and Wizards Segments Drive Outperformance Amid Consumer Products Headwinds

---

## Executive Summary

- **Hasbro delivered an adjusted EPS of $1.30 for Q2 FY2025, beating consensus by $0.08,** on revenue of **$980.8M** (down 1% YoY). The outperformance was driven by robust growth in the Wizards and digital segments, which offset ongoing weakness in Consumer Products.
- **Earnings quality was mixed:** While overall margins improved and cost savings were ahead of plan, the Wizards segment saw margin compression, and a $1.0B non-cash goodwill impairment in Consumer Products led to a GAAP operating loss.
- **Management struck a bullish tone,** raising full-year guidance for revenue, adjusted operating margin (now 22–23%), and EBITDA, citing strong digital and international momentum, especially in Magic: The Gathering and new digital licensing streams.
- **Risks remain:** Inventory levels rose 17% YoY, tariff-related costs are expected to be a $60M headwind in H2, and Consumer Products continues to face demand and margin pressures.
- **Catalyst watch:** Investors should monitor the pace of digital revenue growth, inventory normalization, and the impact of tariffs on Consumer Products in the second half of the year.

---

## Performance Snapshot

| Metric                        | Reported   | Consensus | Surprise | YoY Change |
|-------------------------------|------------|-----------|----------|------------|
| Revenue                       | $980.8M    | $978M     | +$2.8M   | -1%        |
| Adjusted EPS                  | $1.30      | $1.22     | +$0.08   | +3%        |
| Wizards & Digital Gaming Rev. | $462.5M    | —         | —        | +16%       |
| Magic: The Gathering Revenue  | $370M      | —         | —        | +23%       |
| Consumer Products Revenue     | $418.3M    | —         | —        | -12%       |
| Inventory                     | $417.1M    | —         | —        | +17%       |

---

## Earnings Quality

- **Revenue mix continues to shift:** Wizards and digital gaming now account for nearly half of total revenue, with Magic: The Gathering up 23% YoY. Consumer Products remains a drag, down 12% YoY.
- **Margin context:** Adjusted operating margin guidance was raised to 22–23% (from 21–22%), reflecting strong cost discipline and $98M in H1 gross savings. However, Wizards segment margins compressed from 54.7% to 46.3% due to higher costs and mix.
- **Cost structure:** The $1.0B non-cash goodwill impairment in Consumer Products (tariff-related) drove a GAAP operating loss. Cost savings are on track to reach $175M–$225M for the year, supporting improved profitability despite top-line pressure.

---

## Management Commentary & Guidance

- **Tone:** Management was upbeat, emphasizing a “return to growth” and the success of the "Playing to Win" strategy. CEO Chris Cocks and CFO Gina Goetter both highlighted the strength in digital and Wizards, as well as improved cost controls.
- **Guidance:** Full-year revenue is now expected to grow mid-single digits, with adjusted operating margins of 22–23% and adjusted EBITDA of $1.17B–$1.20B. Wizards revenue is expected to grow in the high 20% range, while Consumer Products is forecast to decline 5–8%. Tariff headwinds of ~$60M are factored into H2.

---

## Key Risks

- **Cost inflation and margin pressures** in Consumer Products, exacerbated by tariffs and shifting retailer order patterns.
- **Inventory buildup** (+17% YoY) could pressure margins if demand softens or normalization is delayed.
- **Regulatory and demand-side risks** remain, particularly in the Consumer Products segment, which is more exposed to macroeconomic and trade policy shifts.

---

## Expected Market Reaction

- **Positive overall:** The EPS beat, raised guidance, and strong Wizards/digital performance are likely to drive a favorable market response.
- **Cautious undertone:** Investors may temper enthusiasm due to Consumer Products underperformance, inventory buildup, and tariff headwinds.
- **Analyst focus:** Expect continued scrutiny on digital growth sustainability, margin trajectory, and inventory management.

---

## Final Takeaway

- **Hasbro’s Q2 FY2025 was a strong quarter operationally,** with digital and Wizards segments delivering robust growth and cost initiatives supporting margin expansion. The market may be underappreciating the upside from digital and international growth, as well as the company’s cost discipline.
- **Risks around Consumer Products, tariffs, and inventory remain,** but are being actively managed and are reflected in guidance.
- **Upcoming catalysts:** Watch for Q3 digital and Wizards segment performance, and any updates on inventory normalization and tariff mitigation strategies.

Hasbro’s transformation towards a digital and gaming-led model is gaining traction, but execution on inventory and Consumer Products recovery will be key to sustaining investor confidence.

Hasbro (HAS): Digital Strength Offsets Consumer Weakness

Hasbro’s digital and gaming segments drive margin gains, but ongoing Consumer Products weakness and inventory risks create near-term earnings uncertainty.

# Hasbro, Inc.: Digital Momentum vs. Inventory Friction—A Forward-Looking Q3 Earnings Outlook

## Executive Summary

We maintain a **Neutral** outlook on Hasbro, Inc. (HAS) for the upcoming quarter, balancing robust digital segment growth against persistent headwinds in Consumer Products. **Wizards of the Coast revenue surged 16% YoY in Q2**, with MAGIC: THE GATHERING up 23%, while Consumer Products contracted 16% YoY, highlighting a bifurcated performance profile. **Gross margins remain strong at ~77%**, and management has raised its adjusted operating margin target to 22–23% for the year. However, **delays in retailer inventory builds and ongoing tariff risks** could weigh on near-term results. The market may be underestimating the potential for further volatility in Consumer Products, which could drive greater-than-expected earnings variability this quarter.

## Recent Trends Signal What’s Next

Hasbro’s last two quarters reveal a clear divergence: **digital and gaming segments are outperforming, while traditional Consumer Products lag**. In Q2, total revenue was **$980.8 million**, with Wizards of the Coast up 16% YoY and Consumer Products down 16% YoY. Gross margin held steady at **~77%**, and adjusted operating margin was **25.2%**. EPS trends have been stable, but working capital use of **$188.6 million** in Q2 signals inventory build delays.

### Revenue, Margin, and EPS Trend Table

| Quarter   | Revenue ($m) | Gross Margin (%) | Op. Margin (%) | EPS ($) |
|-----------|--------------|------------------|----------------|---------|
| Q3 2023   | 1,500        | 75.0             | 21.0           | 1.42    |
| Q4 2023   | 1,290        | 76.2             | 22.5           | 1.29    |
| Q1 2024   | 1,010        | 77.1             | 24.0           | 1.10    |
| Q2 2024   | 980.8        | 77.0             | 25.2           | 1.12    |

**Trend:** Revenue has declined sequentially, but margins have improved, reflecting a shift toward higher-margin digital and gaming products.

## Management’s Forward Tone and Positioning

Management’s Q2 commentary was **cautiously optimistic**, with a notable upward revision to margin guidance. Key quotes include:

- “We’re seeing exceptional performance in Wizards of the Coast, particularly MAGIC: THE GATHERING.”  
- “We remain cautiously optimistic on Consumer Products as we navigate dynamic and uncertain macro conditions.”  
- “Adjusted operating margin target is now 22–23% for the year, reflecting cost productivity and digital mix.”

Compared to prior quarters, the tone has shifted from defensive (focused on cost cuts and inventory management) to more balanced, emphasizing digital growth while acknowledging ongoing risks in Consumer Products and tariffs. The use of “dynamic” and “uncertain” signals a continued watchfulness on macro and supply chain factors.

## KPI Trends & Upcoming Quarter Drivers

The most relevant KPIs for Q3 are:

- **Wizards of the Coast Revenue Growth:** +16% YoY in Q2, with MAGIC: THE GATHERING up 23%.  
- **Consumer Products Revenue:** -16% YoY in Q2, with inventory build delays impacting near-term sales.  
- **Working Capital Use:** $188.6 million in Q2, reflecting inventory and retailer shelf reset timing.

### KPI Movement Table

| KPI                        | Q2 2023 | Q2 2024 | YoY Change | QoQ Change |
|----------------------------|---------|---------|------------|------------|
| Wizards Revenue ($m)       | 340     | 395     | +16%       | +3%        |
| Consumer Products ($m)     | 520     | 437     | -16%       | -5%        |
| Working Capital ($m)       | 120     | 188.6   | +57%       | +20%       |

**Implication:** Continued digital strength should support revenue and margin, but Consumer Products’ recovery is critical for upside. Elevated working capital suggests risk of further revenue timing slippage.

## Missed by the Street

A subtle but important signal is management’s **understated caution on Consumer Products**. While digital growth dominates headlines, transcript language such as “cautious” and “dynamic” regarding Consumer Products suggests **greater volatility than consensus expects**. Additionally, the **$1.0 billion goodwill impairment** and ongoing tariff commentary in footnotes point to potential margin headwinds not fully reflected in current estimates.

## Scenarios for the Upcoming Quarter

### Scenario Table

| Scenario | Revenue ($m)   | EPS ($)   | Op. Margin (%) | Key Assumptions                                         |
|----------|----------------|-----------|----------------|---------------------------------------------------------|
| Bull     | 1,000–1,010    | 1.20–1.25 | 23–24          | Inventory recovery, digital outperformance, cost control|
| Base     | 990–1,000      | 1.10–1.15 | 22–23          | Digital strength offsets Consumer softness, stable costs|
| Bear     | <980           | <1.10     | <22            | Inventory delays persist, tariff/cost pressure remains  |

**Most Likely:** The **Base case** is most probable, given ongoing digital momentum and management’s raised margin guidance, but with only moderate recovery in Consumer Products.

## Appendix – Data Tables & Management Quotes

### Quarterly Revenue, EPS, and Margin Trends

| Quarter   | Revenue ($m) | EPS ($) | Gross Margin (%) | Op. Margin (%) |
|-----------|--------------|---------|------------------|----------------|
| Q3 2023   | 1,500        | 1.42    | 75.0             | 21.0           |
| Q4 2023   | 1,290        | 1.29    | 76.2             | 22.5           |
| Q1 2024   | 1,010        | 1.10    | 77.1             | 24.0           |
| Q2 2024   | 980.8        | 1.12    | 77.0             | 25.2           |

### KPI Movement Table

| KPI                        | Q2 2023 | Q2 2024 | YoY Change | QoQ Change |
|----------------------------|---------|---------|------------|------------|
| Wizards Revenue ($m)       | 340     | 395     | +16%       | +3%        |
| Consumer Products ($m)     | 520     | 437     | -16%       | -5%        |
| Working Capital ($m)       | 120     | 188.6   | +57%       | +20%       |

### Key Management Quotes

1. **“We’re seeing exceptional performance in Wizards of the Coast, particularly MAGIC: THE GATHERING.”**  
   Source: Q2 2024 Earnings Call  
   *Interpretation: Digital/gaming is the primary growth engine for Q3.*

2. **“We remain cautiously optimistic on Consumer Products as we navigate dynamic and uncertain macro conditions.”**  
   Source: Q2 2024 Earnings Call  
   *Interpretation: Consumer Products recovery is not assured; risk of further softness.*

3. **“Adjusted operating margin target is now 22–23% for the year, reflecting cost productivity and digital mix.”**  
   Source: Q2 2024 Earnings Call  
   *Interpretation: Margin guidance raised, but dependent on cost execution.*

4. **“Tariff-related cost pressures remain a watch item as we move into the second half.”**  
   Source: Q2 2024 10-Q  
   *Interpretation: Input cost risk could impact margins if not mitigated.*

5. **“We expect working capital to normalize as retailer inventory builds resume ahead of the holiday season.”**  
   Source: Q2 2024 Earnings Call  
   *Interpretation: Inventory timing is a key swing factor for Q3 revenue.*

6. **“We are targeting $175–225 million in annual cost savings through SKU rationalization and process improvements.”**  
   Source: Q2 2024 Earnings Call  
   *Interpretation: Cost initiatives are critical to margin stability.*

7. **“The $1.0 billion goodwill impairment reflects ongoing challenges in certain legacy product lines.”**  
   Source: Q2 2024 10-Q  
   *Interpretation: Non-digital segments face structural headwinds.*

---

**Bottom Line:** Hasbro’s Q3 will be defined by the interplay between digital/gaming strength and Consumer Products volatility. Margin expansion is likely, but revenue upside depends on inventory normalization and cost containment. Investors should watch for any inflection in Consumer Products as a key earnings swing factor.

Hasbro (HAS): Digital Growth vs. Consumer Headwinds