Gina Goetter
Executive Vice President Chief Financial Officer at Hasbro
Thanks, Chris, and good morning, everyone. The Hasbro team continues to make progress in transforming our company, building a world-class gaming business, streamlining and improving the profitability of our consumer products, and strengthening our balance sheet. Our third quarter results demonstrate the growth potential across our diversified gaming portfolio, offset by the tough macro environment across Toys and Entertainment. Despite market headwinds, we are growing share in the categories where we compete and are beginning to see the benefits of our cost savings initiatives play through the P&L.
Total Hasbro revenue of $1.5 billion was down 10% versus last year. Wizards of the Coast and Digital Gaming revenue increased 40% behind strong contributions from Baldur's Gate III, MONOPOLY GO!, and MAGIC: THE GATHERING. Consumer products declined 18% due to macro category trends and planned business exits. Excluding these exits, the segment finished down 12%. The Entertainment segment declined 42% due to the writer and actor strike impact. Adjusted operating profit of $343 million increased 27% versus last year. The increase was the result of favorable product mix, most notably high margin digital game revenues, as well as lower royalty and operating expenses. Adjusted earnings per share of $1.64 increased 15% versus last year, reflecting the higher operating profit partially offset by incremental interest expense in an unfavorable tax rate impact. The adjusted results exclude $512 million of cumulative pre-tax impacts associated with the loss on assets held for sale and to a lesser extent, one-time charges for the Operational Excellence program.
Looking at our brand performance, our franchise brands grew 8% in the quarter and were flat 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 Q3 revenue growth across gaming, including DUNGEONS & DRAGONS, Hasbro Gaming, and MAGIC. Partner brands declined year-over-year after strong performance from Marvel and Star Wars in 2022. Partnerships like we have with The Walt Disney Company remain a key priority for us, and we expect results to improve in the quarters ahead as we expand our partner brand lines and categories, like our just-announced collaboration with Marvel and MAGIC.
Turning to operating margin, third quarter adjusted operating margin of 22.8% with 6.7 margin points higher than last year. The profit impacts and the volume decline in consumer products was offset by favorable mix growth in licensed Digital Gaming and MAGIC. Supply chain cost savings outpaced inflation and delivered 1.9 points of margin growth. Operating expenses also contributed 1.4 points behind labor, and lower royalty expense for exited licenses. Lower advertising spend contributed 1.7 margin points of improvement, as we aligned spend to current demand. That said, we will continue to invest in advertising and marketing to drive sales this holiday season. Finally, lower entertainment deliveries resulted in a decline in program amortization expense that contributed 1.5 points margin.
Our transformation activities are delivering real savings in our P&L. Having begun these programs last year, we have a strong start on resetting the cost base for the company, and the savings are helping us navigate a softer Toy market. Year-to-date, we have accumulated $62 million of gross cost savings within supply chain and an additional $92 million of gross savings within operating expense. The combined $154 million of gross cost savings this year are more than offsetting supply chain cost inflation, and allowing us to reinvest in the business and partially defray the higher cost to move through inventory.
Cumulatively, since we began the savings program last year, we have reduced our cost base and delivered gross savings of $174 million. This progress puts us on track to meet our long-term gross savings goals earlier than expected, and we will be doubling down as we continue to focus on streamlining our operations and improving the profitability within Toys. We continue to make progress in lowering inventory levels. We've reduced total owned inventory 27% versus prior year, primarily driven by a 34% reduction in the Consumer Product segment inventory. From a retail inventory perspective, their inventory was down 18% year-over-year, but up sequentially versus last quarter as they set for the holiday season. As we look to the balance of the year, we remain focused on ensuring we have a clean start to 2024, both in owned and retail inventory levels, and will continue remaining agile in taking actions to stay in sync with broader category momentum.
Looking more closely at segment performance within the quarter, Wizards segment revenue increased 40% versus last year, 23 points to growth was led by licensed Digital Gaming revenue from BG III and to a lesser extent, MONOPOLY GO!; the revenue for Baldur's Gate is realized along with unit sales, whereas in the near-term, MONOPOLY GO! has a straight line revenue recognition based on the total multi-year contract minimum guarantee. Tabletop revenue, which includes both MAGIC and D&D, added 14 points of growth driven by timing releases, including an incremental MAGIC release in this quarter versus last year. The growth in high margin licensed Digital Gaming drove a 99% increase in total segment operating profit versus last year and expanded operating profit margin by 14.3 percentage points.
Turning to the Consumer Product segment, the overall Toy category was down 8% in the quarter according to Circana versus 6% through the first part of the year. Despite the category headwinds, we gained share in four of our five key categories, including Action Figures, Arts and Crafts, Preschool, and Blasters. Overall Consumer Product segment revenue was down 18% versus last year. Looking at the key drivers for the quarter: six points of the revenue decline was driven by planned license exits; another 12 points of decline was driven by Toy and Game volume given the broad category trends; two points of decline came from pricing and mix, driven by additional closeout costs as we worked through higher inventory levels; FX had a favorable two-point impact on the segment; the segment adjusted operating margin declined 1.4 margin points, primarily driven by unfavorable mix and higher inventory obsolescence and closeout costs.
Turning to the Entertainment segment. In the quarter, revenue declined 42%, primarily as a result of the writers and actors strike. Partially offsetting this was 53% revenue growth in family brands driven by content sales primarily for Peppa Pig and Power Rangers. Adjusted operating profit increased 37% and margin expanded 3.8 margin points to 6.6% due to the exited businesses, lower program amortization, and operating expenses. The eOne Film & TV asset to be sold has delivered approximately $400 million of revenue year-to-date, which is down approximately 20% versus last year. Full year earnings are expected to be breakeven to a modest loss. We've received the expected regulatory approvals for the sale of eOne Film & TV and remain on track to close the deal by the end of the year.
Wrapping up with Hasbro Inc., we delivered $335 million of operating cash year-to-date, which is $73 million ahead of last year, driven by working capital improvements led by the reduction in inventory, combined with lower production costs within the Entertainment segment. Our cash and cash equivalents of $186 million does not include approximately $70 million of cash recorded in assets held for sale, the substantial majority of which we expect to stay with Hasbro upon the close of the transaction. Including this, it brings our cash-on-hand to approximately $250 million, up from $217 million in Q2 2023.
Through Q3, we repaid $107 million of long-term debt and spent $160 million on capital expenditures led by investments in Wizards of the Coast for future Digital Gaming releases, and we've returned $291 million of capital to our shareholders via dividends. In the quarter, we booked a 23.2% adjusted underlying tax rate, which compares to 19.9% last year. The higher rate continues to be the result of our Film & TV losses and a shift in the geographical mix of income.
Turning to our 2023 guidance. The impact of the broader Toy category decline has had a change on our Consumer Products and total Hasbro outlook. Based on this, we now expect total Hasbro Inc. revenue to be down 13% to 15%. As we look at the three primary segments, this guidance now assumes that the Consumer Products business will be down mid-to-high teens.
Based on the category trend in Q3, we are planning for modest improvement in Q4 as we begin to lack the market declines from last year. We believe that retailers will remain cautious with their inventory positions, which will have an impact on typical holiday order patterns. We continue to expect that Wizards of the Coast will deliver high single-digit revenue growth, behind the [Phonetic] strong performance within Digital Gaming and solid performance on MAGIC. The majority of the revenue from BG III was realized in Q3. We expect a modest positive contribution to revenue from the game in Q4, as it will continue to be recorded in line with unit sales. MONOPOLY GO! Q4 revenue will be consistent with Q3 given the accounting methodology. As Chris said, in total, we expect the aggregate contribution from these two licensed games to be more than $90 million for the full year.
And finally, for Entertainment, we continue to expect revenue declines of 25% to 30%, which incorporates the impact of the writers and actor strike on production deliveries in the back half of the year. Minus these assets held for sale, we expect total company revenue declines of 8% to 11% for the year. Adjusted operating margin is now expected to be between 13% and 13.5%. This guidance reflects the impact of the CP revenue call down and includes additional one-time costs to clear aged inventory on Hasbro's balance sheet, continue share momentum, and reset the foundation heading into next year. This margin guidance includes a step-up in the in-year gross cost savings from our transformation efforts to $200 million. And as we look to 2024, we expect to continue accelerating our savings efforts to improve the profitability across Toys and Games. Given the revenue call down, we now expect 2023 adjusted EBITDA of $900 million to $950 million. And based on this current forecast, we expect to generate $500 million to $600 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 remain committed to our dividend strategy and advancing our progress towards achieving an overall 2 to 2.5 times long-term leverage target. As I said earlier, we are making good progress on our transformation, and the work we've done to-date has us positioned to build on our Gaming leadership and strengthen our Toy business. We believe the Toy market will stabilize and return to growth. Our near-term focus is on executing the holiday season, resetting the cost base, removing complexity, and sharpening the innovation pipeline for 2024 and 2025.
Chris and I will now take your questions.
