Hasbro, Inc. (HAS) Q3 2026 Earnings Call Transcript

Operator: Good morning, and welcome to the Hasbro Third Quarter 26 Earnings Conference Call. At this time, all parties will be in listen-only mode. Today's conference is being recorded. If you have any objections, you may disconnect at this time. This time, I would like to turn the call over to Frederick Wightman, vice president, Hasbro Investor Relations. Please go ahead.

Frederick Charles Wightman: Thank you, and good morning, everyone. Joining me today are Christian Cocks, Hasbro's Chief Executive Officer and Gina Goetter, Hasbro's Chief Financial Officer and Chief Operating Officer. begin today's call with Christian and Gina providing commentary on the company's performance, before taking your questions. Our earnings release and presentation slides for today's call are posted on our 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 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 Christian Cocks. Christian?

Christian Cocks: Thanks, Frederick, and good morning, everyone. Hasbro delivered another strong quarter with record profitability. Revenue grew 15% and adjusted operating profit improved 52%. With growth across all 3 of our segments. Wizards of the Coast momentum continued, driven by the Magic Flywheel. And our consumer products business posted another quarter of gains. We are increasing our outlook for the year, which Gina will walk through in her remarks. Despite all of the macro noise in the quarter, we stayed true to our superpower. Inspiring a lifetime of play. We do that by building deep, lasting fandom around great IP. Magic is the clearest proof point. Magic revenue topped 600 million for the first time. growing 34% versus last year and beating the record we set last quarter. Strength was broad based across tentpole releases, backlist, and secret lair. The Hobbit, which launched in August, is the fourth best-selling set in Magic's history. And it did that with a leaner product lineup. Shipments of Reality Fracture, which debuted in early October, exceeded our expectations. And Backlist and Secret Lair are on track for record years. Looking at q '4, Star Trek, our final set of the year, arrives in November, and early signs are encouraging. it is drawing Star Trek fans who are new to magic which is the core thesis behind universes beyond. You can see that demand and engagement. Hobbit prerelease participation across our 13 thousand Wizards play network partners was the highest we have seen for a Universes Beyond release. And Magic Con Atlanta is sold out with badge sales up nearly 30% versus last year. The clearest proof is the player base. Take the first 9 months of 2026 and compare it with all of 2024, our last year without a tentpole Universes Beyond release. Organized play participants are up more than 40% with 3 months left in the year. Fans come in through IP they already love, and expanded distribution makes it easier to find us. They stay because deep gameplay married with best in class fan experiences distinguishes Magic from other trading card games. In 2027, we expect Magic to grow on top of a record 2026. Each of our 6 tentpole releases next year has a full product suite, We are scaling production capacity to meet demand, and our fan base and retail distribution keep expanding. At New York Comic Con, we announced Marvel Darkhold Destiny. Our prior Marvel sets brought existing storylines into magic. This 1 tells an original Marvel story, centered on a brand new character and a companion comic. All sets next year are bangers. And we look forward to telling you more about them in the coming months. Turning to digital games. At GamesCon, we kicked off hands on previews for Exodus and confirmed an April 7, 2027 launch date. We are excited to get Exodus in front of players with more demos and announcements in the coming months. Warlock, our D&D action adventure game, follows in 2027. And was the #1 most wish list new game from opening night. We will share more on both titles before year end. Starting this quarter, we are providing additional information on our licensing business. And it is a model we like. it is asset light, which lets us focus on what we do best while leaning into our partners' capital investments. Hasbro is a top 5 global licensor with more than $17 billion in annual retail sales. And we plan to build on that position across 5 priorities. First, we are building an enterprise wide franchise system that aligns story, product, and retail around key moments. Peppa Pig's Baby Eazy initiative is the first proof point. Retail sales grew nearly 30% while we spent 1/3 less on marketing. Second, we are scaling licensed consumer products, anchored by Peppa Pig, transformers, and My Little Pony, and extending into magic and dungeons and dragons. Third, we are accelerating location based entertainment. Where we are the #1 licensor in the space. Fourth, we are diversifying digital licensing with a pipeline of mobile, PC, and console titles. MONOPOLY GO shows the asymmetric opportunity when you partner with industry leaders. Fifth, using entertainment and music to create fandom that pays off across the portfolio. What connects all 5 strategies is the same asset light model. And these businesses generate nearly $700 million in annual revenue across consumer products, digital, and entertainment. Turning to consumer products. Revenue grew 4% to $828 million. In line with our expectations. And our toy and game business delivered its fourth consecutive quarter of growth. Marvel product was the standout. With revenues up more than 35% supported by theatrical releases from our partners at Marvel Studios. We are pleased with the momentum across our entertainment led brands. Transformers 40th anniversary has been a great moment for fans. As we brought the 1.99 thousands film back to theaters on Transformers Day which coincided with strong retail events. In Marvel, Spider Man remained strong following Brand New Day, and Power Charge Spider Man is featured in multiple holiday gift guides. Doctor Doom product is on-shelf ahead of the Avengers: Doomsday debut in December. With several items on retailers' top toy lists. We are entering the holidays with momentum. Especially in our focused GEM Squared categories. Those parts of the toy industry that are gamified, entertainment driven, multipurchase, and multigenerational. The third quarter showed what happens when we stay true to our superpower of inspiring a lifetime of play. Magic is deepening its player base and setting records. Licensing extends our brands through great partners who bring their own capital. And our toy and game business has grown 4 quarters in a row. That is a balanced portfolio. And it is the foundation for the outlook Gina will walk through. Before I turn things over, I wanna thank our teams and partners around the world for delivering another great quarter. Gina?

Gina Goetter: Thanks, Christian, and good morning, everyone. Q3 was our strongest quarter of the year. With revenue growth and margin expansion across all 3 segments. Revenue, profit and cash flow each came in ahead of our expectations, and the quarter gives us the confidence to raise our outlook again. Net revenue in the third quarter was $1.6 billion, up 15% year over year. Adjusted operating profit was $541 million, up 52%, with an adjusted operating margin of 33.9% up 38 basis points. On favorable business mix, cost productivity, and the benefit of tariff refunds. Which I will detail in a moment. Adjusted earnings per diluted share were $2.90, up 73% reflecting operating leverage higher interest income, and a lower effective tax rate. Through the first 9 months, net revenue of $3.7 billion grew 15% Adjusted operating profit of $1.1 billion grew 35%. And adjusted operating margin expanded 440 basis points to 29.7%. Total Hasbro adjusted EBITDA was $605 million in the quarter, up 46% and $1.27 billion year to date, up 29%. Our cost transformation program remains on track. Contributing $105 million to the first 9 months against our full year commitment of $150 million Those savings are doing exactly what we designed them to do, absorbing higher royalties and input costs, while funding the investment behind Magic, and our 27 digital game launches. Turning to the segments. Wizards delivered another exceptional quarter. Segment revenue grew 31% to $747 million with 34% to $616 million behind the release of The Hobbit, Reality Fracture, and solid backlist performance. Third quarter results include approximately $40 million of Magic sales that we had expected in the fourth quarter, primarily related to Reality Fracture, Predicting the timing of a set is difficult when a release falls right at the start of the quarter. So this is business as usual. Operating profit grew 46% to $367 million with a 49.2% operating margin. Up 25 basis points as volume and mix more than offset higher royalty expense, and the step up in marketing behind our upcoming video game launches. Digital and licensed gaming revenue was $134 million, up 3% with MONOPOLY GO continuing to perform in line with our expectations. The print operations decisions we discussed last quarter continue to pay off. Increasing initial print and distribution runs, has given us the capacity to meet demand at launch, reduce costs, plan our manufacturing network more efficiently. Across premier sets, universes beyond, commander decks, and secret lair, we are producing more products than at any point in the brand's history. And sell through is confirming the demand is there to support it. Through 9 months, Magic revenue of $1.6 billion is up 34%, and the ecosystem remains healthy across both new releases and backlist. Consumer Products delivered the margin inflection we have been working towards. Revenue grew 4% to $828 million with growth across almost all of our markets. Adjusted operating profit doubled to $178 million, inclusive of approximately $48 million of tariff refunds with an adjusted operating margin of 21.5% compared to 11.2% last year. The underlying improvement is the durable part of the story, and it is broad based. Supply chain productivity, lower distribution costs, disciplined operating expense, and favorable business mix, was more than able to offset higher input costs. Through the third quarter, CP revenue of $1.7 billion has grown 3% and adjusted operating margins of 7.7% have grown 410 basis points. Including the onetime tariff refund recognized in Q3. We also enter the holiday season in good shape Owned inventory ended the quarter at $359 million, down 10% versus last year. And both owned and retail inventory are clean, and well positioned against the seasonal build and the upcoming entertainment slate. The broader operating environment remains dynamic, and our teams continue to manage it well. The oil related input costs we flagged earlier in the year are now flowing through the P&L. And the mitigation playbook we built is helping to offset that pressure. On tariffs, the refunds recognized as quarter relate to prior year duties, and we have updated our guidance to incorporate the lower China tariff rate of 12.5% with greater stability in the trade environment we are taking a more measured and flexible approach to our sourcing footprint. Balancing cost, speed, and resilience across our network. And we remain focused on exiting the year with a dependable supply base, and clean inventory on both sides of the shelf. Entertainment segment revenue was $20 million, up 9%, and adjusted operating profit of $18 million contributed at a 91.1% margin driven by favorable mix and deal timing. Beginning this quarter, we are reporting licensing revenue as a separate line on the P&L. This disclosure puts together the licensing revenue for digital gaming, including Monopoly Go, as well as our licensed consumer products business. At roughly 11% of year-to-date revenue, it is a meaningful and capital light contributor that spans the entire portfolio. And we believe the added transparency provides better visibility into our primary revenue streams. Total licensing revenue was $144 million in the quarter, and $417 million year to date, which is down 4% primarily due to $26 million of nonrecurring items across several licensing agreements in the prior year as well as MY LITTLE PONY trading cards compares. From a balance sheet and cash flow perspective, through the first 9 months, we generated $907 million in operating cash flow, up 85% versus last year on earnings growth and improved working capital. We ended the quarter with $851 million of cash, and $576 million of short term investments, which are match dated against our November 2026 maturity. We contributed $226 million towards debt reduction, and returned $445 million to shareholders through dividends and share repurchases. Turning to our full year outlook. We are raising guidance for the year. We now expect consolidated revenue to grow 7% to 9% year over year on a constant currency basis and adjusted EBITDA to be in the range of $1.575 billion to $1.625 billion At the segment level, Wizzards is now expected to grow revenue between 16% to 18% with operating margins of approximately 44% to 45%. From a phasing standpoint, the fourth quarter carries a step up in royalties, as well as approximately $15 million of marketing spend behind the video game launches. Also note that the approximately $40 million of Reality fracture and backlist revenue preships recognized in the third quarter shifts out of our fourth quarter expectations. For Consumer Products, we continue to expect revenue to grow 1% to 3% for the year, with an increase in adjusted operating margin to 8% to 10%. Including the benefit from the tariff refunds. The fourth quarter margin will step down sequentially from Q3, as the tariff refund benefit was completely recognized in Q3 and Q4 carries heavier promotional and shipping mix. Entertainment segment revenue is now expected to grow 3% to 5% with operating margins of approximately 65%. On capital allocation, our priorities are unchanged, but our capacity has grown. First, we continue to invest in the business behind our highest return growth opportunities, led by Wizzards, digital gaming and licensing. Second, we remain focused on paying down debt and maintaining a healthy balance sheet. Third, based on the continued strength of our cash flow, we are again increasing our share repurchase target for the year from $200 million to $400 million. We have repurchased $149 million through the first 9 months and expect to be active through the balance of the year. And finally, we remain firmly committed to our dividend. As part of today's release, the Board has authorized the fourth quarter dividend. A few words on how we are thinking about next year. While we are not giving 2027 guidance today, directionally, the setup is a good 1. Wizards enters the year with a deeper release pipeline, a supply chain that can support it. and we expect, over time, this segment to continue operating at a healthy margin profile in the high 30s and low 40% range. With 2 video games scheduled for next year, Exodus and Warlock, we expect the noncash amortization to result in 2027 margins in the high 30s range. As a reminder, amortization will show up as a depreciation charge within our cost of goods and it will not be added back to adjusted EBITDA. It will be broken out separately on our cash flow statement making it easy to identify, and added back in operating cash flow. In consumer products, the productivity and mix work we completed this year carries forward and we expect to build off a structurally cleaner cost base. And as previously noted, 2026 is the peak investment year for digital gaming, which means the spending curve begins to work in our favor from here. As we wrap up, Q3 was a quarter of execution. Wizards is scaling profitably and doing it at a size that was not possible 2 years ago. Consumer Products has delivered 4 quarters of revenue growth, and has turned the corner on margin. With the underlying improvement holding up even before the tariff recovery. And our cost discipline is funding the investments that will drive 2027 and beyond. We are raising our outlook with confidence, and we remain focused on closing the year from a position of strength. And with that, I will turn it back to the operator for questions.

Operator: Thank you. We will now be conducting a question-and-answer session. We ask you, please limit yourself to 1 question and 1 follow-up to allow as many as possible to participate. To ask your question today, please press star 1 from your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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. 1 moment please for our first question. And the first question today comes from the line of Stephen Laszczyk with Goldman Sachs. Please proceed with your questions.

Stephen Laszczyk: Hey, guys. Thanks for taking the questions. Maybe first for Christian. Magic continues to see really nice momentum. I would just be curious if you could maybe speak to some of the drivers of that strength that you saw, particularly in the third quarter, what might have outperformed versus your expectations across some of those sets? And then importantly, as you look ahead, it sounds like you are excited for each of the sets to come, next year. I was curious if you could speak a little bit more about what you hope each of those new sets will contribute towards growing the franchise over the longer term or perhaps maybe more generally what gives you confidence that Magic can continue to grow off this higher base from here?

Christian Cocks: Sure thing. Good morning, Stephen. Thanks for the question. Well, I would say what outperformed in Q3 for Magic Everything. Reality fracture is 1 of the best performing premier sets we have ever done. The hobbit despite being a much smaller product release in terms of the total number of SKUs, performed like a premier set release with a lot more commander decks, and supplementary SKUs associated with it. And backlist continues to impress with its total number of sales. And I think it is a combination of 3 or 4 things. First and foremost, it is new player growth and player engagement. You know, The Hobbit prerelease was 1 of the biggest we have ever had. Our total number of players who are engaged in store play, which is probably our best kind of proxy for actual engagement. is at records. Players are happy with the sets. Giving us great feedback, repurchasing and investing behind them. Our distribution is up. You know, over 40% in mass, over 30% in, our WPN. it is broad based. it is both North America as well as Europe and Southeast Asia. And just in general, you know, I think we are seeing some great kind of category, tailwinds as well. Magic's performing well, but the overall category is seeing a boom. And that is just consistent with our overall thesis that, you know, on what categories are going to perform which we call GEM Squared, which is those categories that are gamified entertainment driven, multipurchase, and multigenerational. And I think trading cards, you know, over the last year have emerged as the number 1 category in toys and games. I think they are actually bigger than building blocks now. And we see that as a generational structural shift and not just as kind of like a 1-time thing.

Gina Goetter: Can I add 1 fun fact?

Christian Cocks: Sure.

Gina Goetter: I thought you would say this fun fact. But on.

Christian Cocks: Yeah.

Gina Goetter: Christian mentioned backlist. You know, through these first few weeks here in fourth quarter, our backlist contribution in 2026 year to date through these first couple weeks of fourth quarter has already surpassed what we saw in 2025. So to the point of, like, all of the engines are continuing to. We have got momentum across our front list. We have got momentum across the back list. And that is going to continue as we move into next year.

Christian Cocks: And I suppose I will make it real on a 1 practical item. So The Hobbit, much smaller release in terms of SKUs versus Lord of the Rings. The Hobbit's going to do about as much and maybe even more lifetime than Lord of the Rings will do. Despite it being a smaller release. it is certainly done that today. We would typically expect something like The Hobbit to do 50 to a hundred percent, 70% less than what a comparable more full featured release would do. And that is a factor of player growth. Player growth and the ability to be able to access product. And so we see that moving forward. You know, I think, you know, I think a second part of your question was what gives us confidence in 2027 and beyond. Is all those factors. So, you know, fourth quarter magic will likely be down. But a big part of that is we had some sales that happened earlier this quarter or. Sorry. Or that happened this quarter that should have happened early next quarter. Because our supply chain was able to deliver a bit earlier, and the channel wanted it. And we have some product in next quarter that we shifted into Q1. So, you know, minus those shifts, Magic would have had another growth quarter in the high single digits, low double digits. For Q4. Now it will probably be down, you know, call it low single digits, mid single digits. But barring that, it would have been up around 8% to 10%. And so instead, you are gonna see a big growth like you had of 30% plus in Q3, you will have a modest kind of decline in Q4, and then you are gonna see another big spike in Q1. We expect the momentum to carry forward in 2027 with continued growth. On the back of all those factors.

Stephen Laszczyk: that is great color. Very helpful. I can leave it there and pass it on.

Operator: The next question is from the line of James Hardiman with Citi. Please proceed with your question.

James Hardiman: Hey. Good morning. Thanks for taking my call. So, Christian, you just gave us a lot to chew on there in that last little follow-up. I just want to make sure I understand sort of where we were and where we are. I believe your initial and previous expectation was that wizards would be down in the fourth quarter. You are still saying it is gonna be down in the fourth quarter, but had you not moved the timing both from Q4 into Q3 and from Q4 into Q1 of next year we would now be talking about wizards going from being down to being up high singles, low doubles. Just wanna make sure I have all those moving pieces right because certainly 1 of the big questions we are getting is a fourth quarter that was worse than sort of where the street was thinking about it. Just need to make. Double check that.

Christian Cocks: Yeah. You totally captured it, James and good morning. I think the bottom line on Wizards is we manage the game for the fans and not for quarterly results. Like, that should be an expectation moving forward. We are gonna pace the sets based on the logical pacing especially as we do more kind of IP collaborations. And we are working with, you know, outside companies to make sure that we make the biggest moments possible. And, you know, I think the honest answer also is we are chasing demand. Like, you know, we are gonna be opportunistic about when we supply. Our supply chain team is doing a great job. They are helping, like, you know, chase 1 of the hottest categories in toys and games. And, you know, those 2 factors occasionally, we are going to have a quarter that is down. Modestly. But I think you can count on the fact that is not a demand signal. that is just the timing of when we shipped and the timing of when we have product available and the timing and a factor of when we chose to make a product available based off of the best possible time for our channel partners and for our fans.

Gina Goetter: Yeah. The add, the add I would have kind of quantitatively When we were sitting in July doing earnings and looking at our wizard's back half, we had thought that it would be up, you know, collectively, call it low single digits. Now we are gonna exit the year with a back half that is, you know, call it high single digits, low double digit rate. So the overall, you know, improvement or kind of momentum of wizards is continuing. To Chris's point, like, there are things that can shift meaningful revenue as we are seeing, like, 1 week can make a difference, a meaningful difference in the quarter. And I think you have got that compounding factor of just when we are launching our first set in 27, and now reality fracture of how much was shipped that first week. That just take Q4 down, but the overall back half is well ahead of our expectations.

James Hardiman: Got it. That makes a ton of sense. I just think everybody is, I think, rightfully just trying to understand what is signal and what is noise here for sure. Yeah. Yeah. We were staring at the same math ourselves we were prepping, and we knew that was going to be the top. 1 of the top questions.

Gina Goetter: So did we answer both your questions too? So I kinda.

James Hardiman: I actually I did have a second question on sort of margins. But it is the same sort of general topic of sort of signal versus noise. Margins for wizards just continue to blow away. I think even our most optimistic expectations. We are pushing nearly 50% year to date. Obviously, you have talked about that being in high 30s next year. I guess what I am trying to figure out is how to think about sort of core wizard margins. Obviously, there are some, do not want to call them 1-timers because maybe that is the new normal. But is there any reason to think that relative to you know, the really strong performance here year to date, the core wizard's margins would actually compress in 2027. Or is it just some of the things that you have laid out, obviously, video games and some of the other you know, if you wanna call them idiosyncratic factors. Maybe, you know, help us think through sort of core versus you know, other items in the context of 2027 and beyond. Thanks.

Gina Goetter: Sure. Sure. Good question. I mean, obviously, this year, the volume growth that we are seeing on the business kicks off a favorable tailwind on leverage so that you see that showing up in our 26 margins. And as we look forward to 2027, as we have talked about, we expect the Wizards business to grow. We expect that to be, call it, mid to high single digits in that in that range. But we are not going to plan for that business to grow at the double digit rate we are guiding to now. So there is a little bit more leverage kicks off in 2026 that we. We will see some leverage next year just not as great. But to your point, the single biggest thing that will weigh on our margins next year that will keep it in the high thirties is that amortization expense. That will flow through for both games. And remember, as we have talked about x Exodus, now we have the launch date of Exodus being, you know, April 7. In the first 3 months, we will see the majority of that amortization flow through. So the. It will be a Q2 event where we will see most of or I would say 65% of that cost come through. 85% of the depreciation hits within the first 12 months. So we will then pick up some of Exodus as we go through the balance of the year, and then we get Warlock that is coming kind of in the back half. So that is probably the single biggest atypical thing in 2027 that will weigh on margins. Everything else, it puts and takes. We are going to, you know, royalty expense might be a little bit heavier just given our UB set releases, but that is within the realm of reason. We will have puts and takes within operating expenses. We will continue to expect cost productivity to offset inflation. it is really the amortization expense.

James Hardiman: Perfect. Gina. Perfect. Thanks, Christian.

Operator: Thank you. Our next questions are from the line of Xian Siew with BNP Paribas. Please proceed with your question.

Xian Siew: Hi, guys. Thanks for the question. You talked about player growth and how that is kind of driving Magic: The Gathering demand. But can you also maybe talk a little bit about repeat players and what you are seeing in terms of players once they come into the ecosystem via, you know, maybe it is via UB or something else, and then staying and maybe spending more. Curious on that.

Christian Cocks: Yep. Yeah for sure. I think the best proxy for that is backlist sales. And, you know, as Gina mentioned, we already have sold more backlist this year than we did all of last year. That continues to grow at a rate as impressive as our front list is growing. Backlist is actually growing faster. And I think that is a factor of we are bringing new players in, especially on things like Universe is Beyond. So Marvel fans, Avatar fans, Turtle fans, soon Star Trek fans. And they decide that they really like this game. And then they go and buy more sets and not just Star Trek set, they go and buy Reality Fracture. They will go buy Noctis, which is our first set our first premier set next year. And they become magic fans, and they stick around like a magic fan and behave like a magic fan. Which is usually a 5 to 7 year period of time where they play the game actively. And, you know, occasionally, they will put the game down for maybe a year or 2 because they have a life stage, but then they come back. So, you know, magic's a really special game. it is 1 that we do not measure retention in days and months. We really measure it in the years and generations. And the new fans that we are attracting are just as engaged as and just as valuable. As the more traditional fans that we have had over our 35 year history.

Gina Goetter: And maybe 1 other fun fact when you look at our when you look at our backlist sales. Sorry, for the. This last quarter, Christian's point of, like, the people coming in, playing the game, and sticking, our largest set that sold for backlist in terms of distribution were foundation final fantasy, and believe it or not, Lord of the Rings. And that was our, you know, lord of the rings for those newer to the story. That was our very first universes beyond set that we did. Was it 2023? 2023. Yeah.

Christian Cocks: Sorry. You had a question too. Oh, you had 2 questions. Yeah. We are excited about that 1 and then.

Xian Siew: No. No. It makes sense. And then maybe on 2027, I think I heard you say you know, wizards maybe can grow in the mid to high single digit range. I guess that is including some of the maybe incremental video games. But maybe zooming in a little bit on Magic, you also mentioned kind of the full product suite for all of the tent pole set. Scaling supply, grown distribution. So I do not know. It sounds like you have you have fuller sets, more supply, higher distribution, higher player count. It sounds like it is still setting up quite strong for 2027, but any kind of further thoughts on magic?

Christian Cocks: Comment on mid to high single digits was magic, not wizards. So Okay. We expect magic to continue to grow at pace.

Xian Siew: Okay. Understood. Thank you.

Operator: The next question is from the line of Arpine Kocharyan with UBS. Please proceed with your questions.

Arpine Kocharyan: Hi. Good morning. Thank you. And thanks, Christian, for that clarification. That was going to be my follow-up question to you. Because as we think about exodus, that should absolutely add to the top line. Question really is related to Magic: The Gathering distribution that went up further this quarter. Could you maybe talk a little bit about what is driving that and should we expect to see further expansion in Wizards play network sequentially as we get into Q4 and into 2027? Then I have a quick follow-up.

Christian Cocks: Sure. I think you should expect as long as the hobby is growing, and there is vitality in the player base, I think you should expect new player. New store growth to you know, follow new player growth. Through third quarter of 26, we have seen about a 38% growth rate. In the number of WPN stores. We have over 13 thousand now. On mass, we have seen, about a 28% growth rate on the number of stores. Like, Magic's available now in close to 40 thousand doors. And that is just a testament of more people were buying magic and more were buying in the category. And more retailers wanna be part of that story. Whether it is, you know, a GameStop or a Walmart or a Carrefour or a Smith's or, you know, a mox boarding house style. We see a lot of upside there. And there is many more hobby shops and game cafes and board game cafes than 13 thousand around the world. Those are just the ones that qualify into the Wizards Play Network today. And many, many more of them ask us to become part of that because they see the benefits of being part of our engagement loop and part of our reward cycle.

Arpine Kocharyan: Thank you. that is very helpful. And just to switch to consumer products just because we are in the back half of the year and holiday season's ahead of us. You have talked about consumer products up low single digits for Q4. Is that still the case, how you are thinking about Q4? And just for housekeeping, you know, and math purposes, what is your as reported implied revenue guide? Is it around a percentage and a half better than constant FX? Of 7 to 9%? Am I calculating that correctly?

Gina Goetter: Yeah. I. Yep. You are calculating that correctly. And, you know, overall, we look at consumer products, again, looking at the back half of the year, we expect the back half to be up. Low single digits. I believe that means our Q4, it will be flattish, maybe slightly positive. Another similar story, like Wizards, where we had a pretty big comp last year, because of all of the goofiness on tariffs and the shelf set timing changing replan orders were stronger in fourth quarter fourth quarter last year. So overall, our back half is really strong as the retailers have moved to kind of more normal shelf set timing and shipping patterns, but there is a little bit comp noise in our Q4 for CP as well.

Arpine Kocharyan: Okay. Thank you.

Operator: The next question is from the line of Eric Handler with Roth Capital.

Eric Handler: Good morning. Thanks for the question. First, wonder if you could just be willing to dissect a little bit the magic revenue. Like, what percentage of the revenue is frontline versus backlist versus Secret Lair? And how has that changed? Like, let's say, going back 2 years? To 3 years?

Gina Goetter: Morning, Eric. Yeah, we thank you for the question. We typically do not provide those levels of splits. it is suffice it to say, just given kinda how our front list is stacked, the majority of our revenue comes from the front list. The growth rates, as Christian was saying, like the growth rate on back list has been pretty strong, our growth rate on Secret Lair, but the majority of the revenue is gonna come from that front list.

Eric Handler: Okay. that is helpful. And then you know, there has been a lot of concern you know, macro concerns about, you know, will the consumer potentially rollover a bit just given inflationary concerns and consumer sentiment? Does not seem like there is really any concerns with Magic. You know, when you look at your consumer products business, how are you thinking about that with your 4Q product line?

Christian Cocks: Yeah. We are continuing to see a pretty resilient consumer And especially given how we have shifted our portfolio and our portfolio mix to those GEM Squared categories. We are definitely seeing momentum there. So there is nothing that we see going into the holidays that has us concerned about the consumer.

Eric Handler: Great. Thank you.

Operator: Our next questions are from the line of Anthony Bonadio with Wells Fargo. Please proceed with your questions.

Anthony Bonadio: Yeah. Hey, guys. Thanks for taking our questions. I wanted to ask about 2027 sets and specifically Marvel Darkhold. I know you guys sort of talked about the alignment of Marvel sets and your fan base. This 1 seems like it might be a little more synergistic. I guess just thoughts on that. Expectations there. And then maybe more broadly, just how you are thinking about the quality of the 2027 sets you have announced so far versus what you put out this year?

Christian Cocks: Well, I think a couple things. Darkhold Destiny will be pretty cool. it is an original storyline. There will be an original character. I think it really represents how we want to work with partners. We want to represent their IP authentically, And, ideally, we would like to make them, really a part of magic and I think this is a great example of it. I think fans will be excited by it. You know, it will. You know, like, there is been some jokes a little bit in the fan community about how New York, 1 of our most frequent settings, for magic sets over the last year or 2. And I think this kind of brings magic into super heroes and Marvel style action and characters and storytelling. Which should be fun. I think an important thing that you and all of the analysts should also be thinking about is the composition of the sets. So you know, this year and for the last couple years, we have had sets that have had commander decks in them, some sets that have not had commander decks in them, some sets that have had a full suite of collectible products, some sets that have had a more limited suite of collectible products. Next year, each of our 6 major sets will be full sets. They will have all the commander decks and all the collectible products associated with them. And then as I mentioned, we see upwards of a 50% or even greater difference in sales per set when you have that full product suite. And so that is something I think you need to factor in as well. We have not shared all the details about all the sets next year. there is a couple secret ones in the back half of the year. That we think our fans will be pretty excited by. I think needless to say, we feel like all of them are gonna be super high quality. Really great IP, and we have had great partnerships with each.

Anthony Bonadio: Super helpful. Thanks. And then maybe just 1 quick on Exodus. Any changes to how you are thinking about the range of outcomes there? And now that we have got the April 7 date, just key data points to watch from here as we get closer to that release?

Christian Cocks: Well, I think the biggest thing that we are looking for is kind of wish list and preorder activity. And on wish list, so far so good. it is approaching a million wish lists, which based on what we are benchmarking from, you know, other releases over the last couple years, that is benchmarking pretty favorably. We are gonna have a big December. Actually, we are gonna have a big couple of months of new news associated with the game. But in particular, we are gonna have some major news on the game in December. And we will be watching those metrics very, very carefully as we head into the end of the year. And shape our thinking about what we expect it to do commercially when it launches in April.

Anthony Bonadio: Thanks, guys.

Operator: Thank you. The next question is from the line of Gerrick Johnson with Seaport Research. Please proceed with your questions.

Gerrick Johnson: Great. First question, can you just go over the retail sales, the POS in the quarter for both Magic and Consumer Products?

Gina Goetter: Oh, POS overall was. For us in the quarter was, call it, up low single digits overall. I think that includes what I am saying that. that is just toy and game. Yeah. Yeah. And the trading card would have been kinda up high single digits, low double digits numbers.

Christian Cocks: Yeah.

Gina Goetter: The. there is a little bit of a timing lag of when we are doing this call and when we will see final September results. Those come in actually today. So maybe when we talk later on today, Eric, we will have some more some more additional information.

Christian Cocks: But, you know, overall, categories were performing. I think most notably, we should look at how our GEM Squared categories are performing year to date, and those are up almost 14%. So again, when you think about our strategy and how we are shifting our portfolio mix to have those categories growing at a kind of low double digit pace, that is. that is a good thing for us.

Gerrick Johnson: Okay. Great. And 1 follow-up. Can you just discuss the distribution of MAGIC, you know, understanding you use distributors for your hobby shops, and then I guess you go direct to mass. Can you just discuss how you do distribute between the 2 channels and what maybe the margin differential might be. But also, the lag between when you recognize revenue and when perhaps the hobby shop realizes retail sale?

Christian Cocks: Hey, Gerrick. We use distribution for both channels. We do direct for some. But, you know, I would say the vast, vast, vast majority of what we do is through distribution. And the margins are pretty comparable between distribution and direct for us. We have got a lot of good partnerships. Usually, in a given territory, like in The US, I think we have somewhere in the neighborhood of 6 to 8. Major distributors. In Europe, I think we have a bit less, but it is still, like, 3 or 4. We wanna make sure a hobby shop has a choice and can get fulfilled, real time. Usually, our typical hobby shop gets fulfilled in an order in 24 to 48 hours from when they ship it. Usually, our distributors will take product anywhere from, on the low side 2 weeks, on the high side, 6 weeks. Before, a major release. And, really, that just has to do with the composition of when the product's ready, when we can ship it out, and, how complex the release looks like.

Gerrick Johnson: Okay. Great. Thank you for the detail.

Operator: Thank you. Our next question is from the line of Alexander Perry with Bank of America. Please proceed with your questions.

Alexander Perry: Hey. Good morning, everyone. Thanks for taking the questions. I guess, Christian, Magic gets a lot of the airtime and rightfully so. But just wanted to turn to consumer products piece for a second. I guess, you know, how do you think about the medium term growth prospects within that division? Is this a segment that can sort of eke out low single digit top line with some modest margin improvement, or do you think about that segment differently?

Christian Cocks: I think our consumer products division inside of the midterm can do better than low single digits. If you look at just like the new licenses that we have for 2027 alone, start shipping Harry Potter at the very tail end of this year. I think the series debuts in the in the Christmas time frame. Then we will follow that up with a full line, in Q1 and Q2. We will have the Legend of Zelda, which is a brand new license for us. We will have 3 quarters of K-Pop Demon Hunters that effectively have had no comp. No comp. And then you are gonna have another stacked movie lineup next year You are gonna have, you know, a new Spider Man movie. You are gonna have another Avengers film. Star Wars 50th anniversary. The Legend of Zelda movie, the new Harry Potter series, which I got to. I was lucky enough to do a tour of the set and it was magical. I was like, no pun intended. I think all of those combined really sets up for a healthy 2027. And, frankly, it is pretty favorable for 2028. And then from a margin perspective, you know, as we drive incremental upside in terms of the top line, you just get some favorable leverage from that. And then, you know, I think our CP team has done a good job with managing their costs and getting that to something that we think is a lot more competitive. So, you know, I feel like we can get CP margins You know, my goal is to get it into the double digits and make it be really resilient. In that midterm time frame, which is consistent with the guidance that we have given you guys.

Alexander Perry: that is great color. Thank you. Super helpful. Thanks. And then maybe just 1 quick on Exodus. Any changes to how you are thinking about the range of outcomes there? And now that we have got the April 7 date, just key data points to watch from here as we get closer to that release? you spoke in your prepared remarks about your spend curve, you know, beginning to work in your favor. I think the CapEx guide this year was $225 million. You have done about $200 million or so the last several years. Just how should we think about CapEx over the next, you know, next, you know, 18, 24 months? And is, you know, the savings that you have there, should we think about that going towards shareholder returns? Thank you.

Gina Goetter: Got it. Yeah. The commentary specifically was on our digital CapEx coming down. And I believe we said last quarter, by 2028, those development costs will be down 20% to 25%. To your point, since we have been capitalizing that, that will come directly out of that $225 million pool of dollars that we were using. And in short, yes, as that cash flow frees up, it gives us flexibility to either reinvest back into the business to fund more towards share repurchases or to continue to buy back debt.

Alexander Perry: Great. Thank you.

Operator: Thank you. At this time, this will conclude our question and answer session and will also conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time, and have a wonderful day.