Hasbro Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 27, 2023

There are 8 speakers on the call.

Operator

Good morning, and welcome to Hasbro's First Quarter 2023 Earnings Conference Call. At this time, all parties will be in a listen only mode. Today's conference is being recorded. If you have any objections, you may disconnect at this time. At this time, I would like to turn the call over to Ms.

Operator

Debbie Hancock, Senior Vice President of Investor Relations, please go ahead.

Speaker 1

Thank you, and good morning, everyone. Joining me today are Chris Cox, Hasbro's Chief Executive Officer and Deb Thomas, Hasbro's Chief Financial Officer. Today, we will begin with Chris and Deb 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.

Speaker 1

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 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 ks, 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 current marketing process.

Speaker 1

While there is no guarantee of such an outcome, if this process results in a sale, we will 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 Cox. Chris?

Speaker 2

Thanks, Debbie, and good morning. 6 months ago, we unveiled our strategy for Hasbro, highlighting 3 priorities: focusing on fewer bigger brands and initiatives, building our consumer insight to grow share and drive innovation, and improving operational excellence to fuel bottom line health and strategic reinvestment. It's a plan that recenters Hasbro on what has made us great Play is what we do. And as we celebrate our 100th anniversary, 2023 is about refocusing our teams to drive renewed leadership in Toys and Games, rightsizing our entertainment investments and driving fundamental improvements in our organization to deliver long term success. With our strategy top of mind, let's review our Q1 results.

Speaker 2

As anticipated, Q1 revenue was lower year over year, but ahead of expectations, driven by continued positive performance of Wizards of the Coast in digital gaming and another strong growth quarter for Magic: The Gathering. Revenue for the quarter was $1,000,000,000 a year over year decline of 14%. Adjusted operating profit was 47,200,000 and adjusted earnings per share were 0.01 dollars Wizards and Digital Gaming net revenue increased 12% year over year with growth in both Magic and D and D. Magic: The Gathering was a standout performer, growing 16%, particularly impressive given its 40% growth in Q4. The fundamentals of Magic Hasbro's 1st $1,000,000,000 brand are strong with new player growth, player engagement and player sentiment all pointing in the right direction.

Speaker 2

We expect the positive momentum for Magic to continue with Q1 also seeing one of our most successful preorders ever for upcoming Universe is Beyond: The Lord of the Tales of Middle Earth set, which will launch in late Q2. Given our release calendar, we expect revenue for Magic to be down in Q2, but up solidly in Q3 and for the full year. Consumer Products revenue declined 23% year over year. Point of sale was down for the quarter, but improved from Q4 despite exiting several unprofitable businesses and licenses. PLAY DOH, Peppa Pig and Hasbro Gaining saw POS gains in Q1 and we drove late quarter growth in action, particularly in TRANSFORMERS, as excitement amounts for the June release of the Transformers: Rise of the Beasts feature film.

Speaker 2

Beyond Transformers, We have a blockbuster lineup of content from our partners brands, helping to support sales in the back half of the year, including Season 3 of Lucasfilm's The Mandalorian, Star Wars: Ahsoka, Young Jedi Adventures, Indiana Jones and the Dial of Destiny, Marvel Studios' Guardians of the Galaxy 3 and Sony's Spider Man: Across the Spider Verse. Importantly, we ended the quarter with Good progress on reducing retailer inventories and are on track for healthy improvements in our owned inventory in Q2 and Q3. Entertainment segment revenues were off 19%, driven by year over year shifts in release timing of new film Among new Hasbro content released, we debuted our new preschool brand, Kia and the Kimoji Heroes on Disney Junior and Disney Plus and launched with our partners at Paramount, the new feature film Dungeons and Dragons: Honor Among Thieves. D and D took the number one spot at the global box office in its release week and has become Hasbro's best reviewed film ever with an impressive 91% critics score and 93% audience score on Rotten Tomatoes. Based on the strong fan and audience response, We are expecting Honor Among Thieves to enjoy a long viewing life that introduces our newest franchise brand to tens of millions of new consumers globally via theaters, streaming and post theatrical sales.

Speaker 2

Our operational excellence program continues apace. As we execute our plans, we expect the cost savings to grow over the coming quarters. In Q1, we achieved $35,000,000 of cost savings. We continue to expect $150,000,000 of run rate growth cost savings this year. Money we are using to reinvest in the business, offset margin impacts from inventory management programs and help us achieve our full year target of 50 to 70 basis points of adjusted operating profit improvement.

Speaker 2

We made significant progress in recasting our leadership team to drive our strategy. Gina Goetter, the CFO of Harley Davidson and 25 plus year consumer packaged goods veteran joins us in May as our new CFO and leader of our global operations disciplines. Gina has a long history with corporate transformations, which will serve Hasbro well. Tim Kilpin, a 30 plus year veteran with leadership experiences across Marquee Toy, Games and Entertainment Brands joins us as our new President of Toy, Licensing and Entertainment. Jason Bunge, the former Chief Marketing Officer of Riot Games joins us as our new global CMO, bringing new marketing firepower for our games and data driven growth initiatives.

Speaker 2

And Bertie Thompson, Chief Communications and Creative Officer at Notion and Former Communications Executive at Meta joins us as our new Chief Communications Officer, bringing cutting edge technology, social media and financial markets communications expertise. These talented leaders join an extended leadership team, hailing from technology, CPG, toys, games and entertainment companies to drive our strategy and build profitable blueprints across our franchise and partner brands. Our growth initiatives continue to deliver. Hasbro's total games portfolio grew 2% in the quarter. Direct to consumer revenues increased 21%, led by a 46% increase at Hasbro Pulse, our fan focused direct to consumer e commerce platform.

Speaker 2

And on licensing, we just announced our first ever agreement with Mattel, including crossovers for Barbie and Monopoly and Hot Wheels, UNO and Transformers. Partnerships like this along with our previously announced licensing deals with LEGO on Transformers and D and D expand our brands, introduce our toys and games into new categories and leverage our own category leadership for new growth opportunities. For the full year, we are maintaining our previous guidance of a low single digit revenue decline adjusted operating profit margin expansion of 50 to 70 basis points. We continue to expect Q2 to Favoring Q3 impacts Wizards of the Coast sales. We're cautiously optimistic with the progress we've made in Q1, but still maintain an outlook of a flat to down toy and games market where focus, share building and bottom line health are Hasbro priorities.

Speaker 2

On the sale of our non Hasbro branded E1 film and TV assets, we continue to be pleased by the progress and expect to provide an update in Q2. In summary, while Q1 is just a start, we delivered ahead of plan and continue to see steady progress in building our leadership team, focusing the company and improving our operational fundamentals. Magic is strong. The fan economy is proving resilient. Our entertainment calendar is robust and our growth initiatives are on track.

Speaker 2

I'd now like to turn over the call to our Chief Financial Officer, Deb Thomas to share more details. Deb?

Speaker 1

Thank you, Chris, and good morning, everyone. As Chris said, 1st quarter results were ahead of our expectations and position us to meet our full year guidance. Wizards of the Coast led by strong Magic: The Gathering demand Continue to perform well. Our consumer products teams are working through retail inventory and setting for major entertainment releases, and our operational excellence program is delivering savings and helping offset these expenses. As you know, the Q1 is a historically small quarter for our business and most of the year remains ahead.

Speaker 1

In Q1, our fixed cost base is disproportionate to revenue. This impacts our profit early in the year, but we see improvement in future quarters as revenue grows and as we begin to actualize more of our cost savings. In Q1, we realized an additional $35,000,000 in savings and remain on track to deliver $150,000,000 of run rate savings in In addition, this is a 53 week fiscal year and the Q1 holds that extra week. And this equaled $14,000,000 of incremental expense on Littel revenue. Given our first quarter, We now expect revenue in the first half of twenty twenty three to be down approximately 16% versus our previously forecasted 20% decline.

Speaker 1

For the full year, we continue to expect A low single digit revenue decline and 50 to 70 basis points of adjusted operating profit margin improvement. We started the year with a cash balance of $513,000,000 $89,000,000 of operating cash flow in the quarter was offset by non operating outflows, including $30,000,000 of long term debt repayment, dollars 53,000,000 of CapEx led by investments in Wizards of the Coast for future gaming releases and a $97,000,000 return of capital through dividends to our shareholders. We ended Q1 with $386,000,000 in cash. We forecast cash flow for the year in the $600,000,000 to $700,000,000 range. We have sufficient cash flow and liquidity to operate our business, quarter end, inventory at Hasbro is up from year end due primarily to 2 items.

Speaker 1

The first being higher Wizards of the Coast inventories, given the timing of releases this year. With March of the Machine released mid April and universes beyond the Lord of the Rings Tales of Middle Earth shortly before the start of Q3. By year end, we The second increase comes from our consumer product inventories. While we're working through owned inventory from year end, we purchased action figures to set at retail for upcoming entertainment launches, including Rise of the Beasts. We made good progress reducing retail inventories in Q1 and they are down from year end.

Speaker 1

We continue to expect it will take the first half of the year to work through the excess. Resulting in slightly better cost of sales margins compared to Q1 2022. Once we work through the inventory and our sales allowances return to normalized levels, we expect those cost savings will begin to drop to the bottom This should begin in the second half of the year. The sale of the non core TV and film assets is progressing. And while we expect to be able to provide an update on the transaction in the Q2, our closing and related cash inflow is likely to happen in the second half of this year.

Speaker 1

We will prioritize the sale proceeds of the entertainment assets toward paying down debt, lowering our overall debt levels, reducing our ongoing interest expense and improving our debt to EBITDA ratio. We continue to target debt to EBITDA of 2 to 2.5 times and we remain committed to our investment grade rating. Looking at our adjusted results for the Q1, revenue came in ahead of our plan with strong Magic: The Gathering demand and slightly better shipments in our consumer products business. Foreign exchange had a negative $15,800,000 impact on revenues. Cost of sales declined in line with revenue and decreased 10 basis points year over year.

Speaker 1

As I mentioned, the incremental expense for closeouts and allowances is being offset by operational excellence cost savings, Favorable product mix behind growth in Wizards of the Coast and digital gaming revenue as well as CPU licensing Contributed to improvements in cost of sales as a percentage of revenue. Program amortization Royalty expense declined on lower partner brand revenues as we exited certain licenses and to a lesser extent from lower E1 revenues and title mix. In the second quarter, Operating profit will be impacted as we expect royalty expense of approximately 10% of revenue. This is an additional $45,000,000 versus Q1 as we ship products in support of Transformers: Rise of the Beast and Magic's Universe is Beyond the Lord of the Rings set. For the full year, we expect royalty expense to decline from 8.4% in 2022.

Speaker 1

Product development expense increased due to teams supporting our Wizards of the Coast tabletop and digital development who joined the company in the back half of last year. Advertising investment increased on support for Dungeons and Dragons: Honor Among Thieves within our Entertainment segment and at Wizards of the Coast for both D and D and Magic. Adjusted SD and A spend was essentially flat, but increased as a percentage of revenue. Lower freight cost and cost savings from mid Q1 workforce reductions were off Set by higher investment in Wizards, including personnel, organized play events such as conventions and tournaments and marketing for upcoming releases. As a reminder, we expect to achieve more normalized levels of incentive compensation in 2023 throughout the year, which we estimate to be approximately $80,000,000 versus 2022, with $65,000,000 in SG and A and the balance in product development.

Speaker 1

Due to the mix of earnings and lower income in the quarter, Combined with discrete items, mostly related to stock based compensation, our adjusted tax rate for the quarter at 83.8% is not indicative of the year. The outsized impact from small discrete items will normalize with higher income. For the full year 2023, we continue to expect our underlying adjusted rate to be between 20% 21%. Looking at our segments, Wizards of the Coast and digital gaming revenue increased 14% in constant currency. The team is focused on creating gaming experiences Magic and D and D fans embrace.

Speaker 1

Tabletop revenues were up 13% behind popular Magic: The Gathering releases. Digital gaming revenue increased 9% led by the addition of D and D Beyond. As we continue to invest in Wizards of the Coast, operating profit declined 28% due to higher product cost, product development personnel costs, advertising expense and costs supporting the return of organized play. We continue to expect full year operating profit margin for the segment in the high 30% range, which reflects investment for future growth and expansion of our Universe is beyond products. Consumer Products segment revenue decreased 21%, Excluding a negative $8,300,000 impact of foreign exchange, dollars 6,200,000 of which was in Europe.

Speaker 1

This performance was led by lower revenues in North America and Europe, partially offset by growth in Asia Pacific, Latin America and includes higher allowances and closeouts to sell through inventory. We expect these higher costs to continue in the 2nd quarter. These items were partially offset by savings realized from the company's operational excellence program reflected primarily in cost of sales. Entertainment segment revenue decreased 17% in constant currency. TV revenues increased behind scripted TV deliveries, including the new series, The Rookie Feds and The Rookie, which ABC just renewed for 6 Season, Yellowjackets and The Recruit and lower unscripted TV revenue.

Speaker 1

Film revenues declined with fewer new releases in 2023 versus 2022. Family Brands revenue declined due to content sales timing year over year, including several multi year licensing deals executed in Q1 2022 that did not repeat this year. Music and other declined as we exited the remainder of these businesses in late 2022. Adjusted operating loss was the result of lower revenues as well as higher advertising for Dungeons and Dragons on or among these, partially offset by lower royalty expense. As I said upfront, Q1 was a good but small quarter with a lot of the year ahead of us.

Speaker 1

Our outlook is predicated on the second half that improves We remain cautious about the macro and the consumer environment, but the timing of theatrical releases, A strong magic release schedule, the return to a more traditional and back half weighted shipment plan to retailers, Innovation we have planned and we'll share more about this summer and engaging retail and advertising campaigns to improve point of sale It's hard to imagine that this is my last earnings call as Hasbro's CFO. Standing people on amazing brands. And I know Chris, Gina and Tim and our entire team We'll take good care of Hasbro and its legacy. Thank you all for your support of Hasbro and for your partnership over the years. Now one last time, I'll turn it back to Chris.

Speaker 2

Thanks, Deb. Before we turn it over to Q and A, I'd like to spend a minute thanking Deb Thomas for her 25 years of leadership at Hasbro. I started this company 7 years ago as the fresh faced leader of an under the radar subsidiary called Wizards of the Coast. From my first day on the job, there was no bigger supporter of Wizards than Deb. She got it and was always there for a rookie, helping me navigate the broader company and giving me and the team at Wizards the support we needed My story is the same story thousands of people across the company have about Deb.

Speaker 2

She is the true definition of a servant leader. The first one in the office in the morning, the last one to turn the lights off in the evening and a true believer in the power of our people and brands. Deb has been an invaluable partner has helped Hasbro become one of the biggest and best companies in the toys and games and broader entertainment industry. Deb, it's been an honor to work with, partner and learn from you over the years. Our company and our shareholders owe you a debt of gratitude.

Speaker 2

On behalf of everyone at Hasbro and especially me, thank you. Now we will take your questions.

Operator

Thank you. Our first question is from Andrew Erkowitz with Jefferies. Please proceed.

Speaker 3

Hey, thank you so much. I guess question on Magic. Could you just kind of help us understand like the audience segmentation with the Lord of the Rings Who are you targeting? It looks like the strategy around that set is a little different than what we've seen. Thank you.

Speaker 2

Yes. Hey, thanks Andrew. And hey, great report by the way on Magic. We all had a chance to read that earlier this week, thought it was well researched And did a good job of reviewing the brand. So on Lord of the Rings, as we've talked about, for our overall strategy for universes beyond, It's all about bringing in adjacent fandoms.

Speaker 2

We've had great success with this with D and D, which was Kind of a prototype for universes beyond that we did a couple of years ago, the summer set called Adventures in the Forgotten Realms. We've had one of our best selling Commander sets ever with WARHAMMER that we did this fall. We're already on our 4th reprint. And for Lord of the Rings, it's really about appealing to those that rabid fan base who loves Lord of the Rings, who loves JRR Tolkien, who also might love a game like Magic: The Gathering. I think an important secondary component to that is that there's already a whole bunch of Magic: The Gathering fans who are big kind of fantasy, Uber fans.

Speaker 2

They like Lord of the Rings and we see it as a great engagement opportunity for them and a special collectors experience for a set that we don't do very often.

Speaker 3

Got it. That's helpful. Thank you. And then just my one follow-up. Could you kind of just give us an update?

Speaker 3

You have Boulder Skate launching, I think, in Q3. Could you give us an update on expectations, how that will monetize through the income statement? And then just broadly,

Speaker 2

partners at Larian. Larian is probably one of the arguably one of the best independent role playing game publishers in the world. And so we're really excited about what they can do. They released Baldur's Gate 3 into early access on Steam about 2.5, 3 years ago. To date, it's the most successful early access game in Steam's history with well over 1,000,000 adopters just in that kind of like preview period.

Speaker 2

So we have pretty high expectations for Baldur's Gate 3. We think the quality is going to be very, very high. If you look at the reviews on Steam, they're excellent. It definitely is going to be a game of the year or at least a role playing game of the year contender. And it's going to release very broadly on consoles So we think it's going to be a pretty big release.

Speaker 2

In terms of how we participate in that, it's a licensed product for us. We like kind of the partnership that we have with Larian on that. So we'll start to see some contribution from that in the later like probably September in Q3 and then more meaningfully just based on kind of the timing of when we recognize the licensed royalty based revenue in Q4 and Q1 of next year.

Speaker 3

Got it. Thank you so much. I appreciate the updates.

Speaker 2

No worries.

Operator

Our next question is from Eric Handler with ROTH MKM. Please proceed.

Speaker 4

Good morning and thanks for the question. And I'll just say, Deb, just good luck in all your future endeavors and you'll be missed. So first question, with regards to consumer products, your reported results were about over $100,000,000 better than What consensus was looking for. I wonder if you could just maybe give a little color as to where that upside came from. Was this A pull forward for maybe 2Q or another quarter or was are you just seeing more positive retail quarters?

Speaker 2

No. I think we're seeing some underlying momentum in the business across the board. Certainly, Wizards of the Coast came in ahead of Our latest release based on Phyrexia did very, very well. And We continue to be bullish on what Wizards has in store, particularly The Lord of the Rings set in late Q2. On Consumer Products, I think our POS came in a bit better than planned.

Speaker 2

It's still not where we want it to be, but I think we're making steady And just to give some perspective on it, based on our own internal numbers and this doesn't include kind of discounting, We were down about 12% in Q4. We cut that roughly in half in Q1. We were down about 7% year over year. And when you take out some of our exited businesses, particularly Disney Princess and Frozen, we were down less than 4%, which By our math, it's likely at or ahead of market. We're not satisfied with that, but that was ahead of what we planned.

Speaker 2

But I think it augers well for What's going to happen in Q2, Q3 and Q4, where we add like our disciplined execution that we've been doing with our retailers, we add new products And we had what we think is a pretty killer content slate from both ourselves with TRANSFORMERS and our partners, particularly at Disney.

Speaker 4

Okay. That's helpful. And then as a follow-up, can we talk a little bit about Dungeons and Dragons? You've now had a global launch Of the movie, a lot of international markets haven't really been exposed to D and D before. Can you maybe talk about your Marketing strategy here to bring the game to more markets and how that's going to play out?

Speaker 4

Yes.

Speaker 2

I mean, we're very enthused by the critical response and the fan response to the movie. It is by far The best reviewed movie in Hasbro's history. And so we think it's going to have a very long life and it's going to perform particularly well in post theatrical sales and streaming. And that's important for us because D and D is a very strong brand in North America. It's well known in Europe and Asia, but not highly engaged or highly penetrated in those markets.

Speaker 2

And so like a great reviewed movie that has a lot of fan enthusiasm is a perfect opportunity and a perfect entry point And then I think the way that we'll expand upon that over time is we're lowering the barriers to entry for the core game by initiatives that we have digitally, particularly the investments we're making in Dungeons and Dragons and beyond and kind of what we call a virtual tabletop, which is kind of like a video game like And then we have a very aggressive lineup of new digital content and video games coming out, Starting with Baldur's Gate 3 this year, but then continuing on with other licenses that we haven't yet announced, as well as owned content that we have in production And so I think really that kind of 1 two punch of have entertainment, which makes the brand broadly accessible and then add on to that low bird entry digital experiences It's really going to be kind of the flywheel that drives the brand's growth over the next couple of years.

Speaker 4

Thank you.

Operator

Our next question is from Drew Crum with Stifel. Please proceed.

Speaker 5

Thanks. Hey, guys. Good morning. And Deb, best of luck. It was a real pleasure working with you over the years.

Speaker 5

So maybe to start, Part of your original outlook, you had flagged $300,000,000 of sale headwinds from outsourcing brands and foreign exchange. Is there an updated figure you can share there? How is the business tracking to that $300,000,000 And then I have a follow-up.

Speaker 2

Yes. So in Q1, we predicted that about $75,000,000 of that $300,000,000 would manifest And that's the case. We're not operating in Russia. We're not doing Disney Princess or Trolls or Sesame Street. And we are starting to out license some of our secondary properties.

Speaker 2

We anticipate about 60% or so of that $300,000,000 will manifest in the first half of the year. And really what we're seeing is, I think better than anticipated strength in our overall gaming portfolio, particularly Magic and D and D. And then we're starting to see some impact around improved execution at retail and across our marketing teams, particularly in our franchise brands That saw some decent POS across transformers. We see some momentum in core NERF. We see momentum in core Hasbro Gaming, Peppa Pig and Play Doh as well.

Speaker 5

Got it. Okay. Thanks, Chris. And then maybe My follow-up, your forecast for the Wizards segment to achieve a high 30s EBIT margin in 23, A little bit lower relative to the last few years. Is that a reasonable range over the longer term or would you anticipate margin expansion beyond 20 3, which feels like more of an investment here.

Speaker 2

I would say high-30s is what we're targeting in the midterm for sure. We're investing pretty significantly in building out our digital capacity. Some of that is capitalized, But not all of it. And so I think once we start to launch those games, you'll start to see kind of like the realization of those capitalized costs, which will impact kind of like the midterm outlook for our margins. And then as we expand Magic in particular with things like Universe is Beyond, It's a great opportunity to bring in new players, but that's going to be a little bit of a margin impact both in terms of the royalties we spend as well as the development costs because those tend to be a little bit more intensive when you involve a second party.

Speaker 2

Now that said, we feel like that's a really investment. When we attract a new Magic player, they typically stick around for 5 to 7 years and they have an average revenue per user over that time in the to $1,000 range. So giving up a little bit of margin upfront to attract a highly engaged, highly profitable fan segment, We think it's a nice trade off that helps us and helps our shareholders win over the long term.

Speaker 5

Yes. Okay. Very helpful. Thanks.

Speaker 6

Thanks.

Operator

Our next question is from Jason Haas with Bank of America. Please proceed.

Speaker 6

Hey, good morning and thanks for taking my questions. And I'd also like to say congratulations to Deb as well on your retirement and best of luck in your future endeavors. In terms of my questions, I was curious for Consumer Products, are you expecting POS improvement through the remainder of the year to get to the down mid single digit guidance. Can you just talk about what the drivers are in the rest of the year?

Speaker 2

Yes. So in terms of POS, I think Q1 was really about execution. It was about nuts and bolts working with our Tailors improving our positioning, improving our inventory outlook. Through the end of Q1, our retail inventory is down about 15%, which we think is a good down payment on the year and we'll continue to make steady progress in that in Q2 and Q3. Our owned inventory It's up a bit, but most of that has to do with kind of the nature of Wizards production and load in for our entertainment releases around action figures.

Speaker 2

Of Wizards and Action Figures, our owned inventory is actually down through Q1 as well. When we get into Q2 and Q3, I think we'll add to that disciplined execution with increased marketing support and content support with a host of Blockbuster movies and great streaming content, whether it's from us or from Disney. And then also, we're just going to have a lot more product innovation. Q1, we had a couple of new things that hit pretty well. Our gel segment is doing pretty well inside of NERF.

Speaker 2

NERF Junior launched and that's doing pretty well to expand age segments inside of the NERF portfolio. But really it's Q2 and Q3 where all of our new games, A lot of our preschool innovation, I'm particularly excited for Young Jedi Adventures, with our partnership with Star Wars in preschool and what we can do there, As well as across the board, several new pieces of innovation that we haven't announced yet, but we see a lot of retailer excitement for, That should add to the POS momentum.

Speaker 6

That's great. And then can you just walk through The releases for Magic for 2Q versus 2Q last year because I thought we I know you've said you're expecting to be down, I know the initial expectation for 2Q. But I just think we have Lord of the Rings, which seems to be off to a good start. And then what's that up against? Was that Kamigawa last year?

Speaker 6

Can just kind of help frame up what causes the difficult compare?

Speaker 2

Well, Kamigala was Q1 of last year. Double Masters was in, I believe Q2 last year. Really, it's less around the sell through of the releases because we actually think the sell through is going to be quite strong in Q2. And it's the timing of the releases, particularly in the beginning of the quarter and then in Q3. So like Our March of the machines release this year comes a little bit earlier than last year's comparable release.

Speaker 2

So we had a little bit of Q1 shipped, which affects Q2. And then our major release for Q3 is about a month later year over year. So last year we were able to ship a fair bit of our Q3 release at the end of Q2, whereas this year almost all of that Q3 release will be shipped solely in Q3. So while we're excited about the sell through and the fan engagement potential of the Q2 releases, we actually for the quarter in terms of a sell in perspective Are down about a set to a set and a half year over year.

Speaker 6

Helpful. Thank you.

Speaker 1

Great.

Operator

Our next question is from Fred Wightman with Wolfe Research. Please proceed.

Speaker 7

Hey, guys. I just wanted to follow-up on the retail inventory performance. It sounded like in the prepared remarks, you that to be sort of cleaned up by the end of the first half. And then Chris, I thought you just made a comment that it could continue into 3Q. So when do you sort of think that will be normalized?

Speaker 7

And is it a little bit sooner than you would have thought exiting last quarter?

Speaker 2

Well, I would say, We'll get to pretty normal levels by the end of Q2, but there will be some additional kind of cleanup into Q3. That's just the nature of the beast. In terms of our owned inventories, we made progress outside of Action Figures and Wizards in Q1, And we expect that to continue. I would say, we'll be done with about 50% to 60% of the job by the end of Q2 and should be pretty clean on kind of our aged inventory by the end of Q3 and entering Q4 in a pretty clean state, both for retailers as well as our owned and operated. Our goal for the year continues to be our overall inventories are down 25% or more, with comparable levels exiting 2023 to what we exited 2021 at, which was a historically low year for us.

Speaker 7

Makes sense. So if we think about the timing that you just touched on for the retail inventories and we think about sort of the year over year changes in some of the Can you just help us think about the mix for the back half of the year as far as 3Q versus 4Q? Like how do you sort of see that shaking out versus Historical patterns and how do you sort of see the back half of the year progressing versus that first half guide that you gave us?

Speaker 6

Deb, do you want to take the follow-up?

Speaker 1

Sure. So historically, the back half of the year has always been like in the high 60% range and we expect it to get back to that this year. As far as the mix, as we talked about, we Q3 to be the biggest quarter for Magic this year. We've got very strong releases. Chris talked about the timing.

Speaker 1

And you'll certainly see more sell through. We shipped Lord of the Rings late in Q2, but the sell through comes in Q3. So When you think about the mix, we do expect the consumer to come back. We talked about that. It's just a function of the timing, but we do Back to bigger quarter for Magic, just looking at timing and releases.

Speaker 1

But overall, we expect

Operator

We have reached the end of our question and answer session. I would like to turn the conference back over to Debbie for closing comments.

Speaker 1

Thank you, Sherry, and thank you everyone for joining our call today. The replay will be available on our website in approximately 2 hours and management's prepared remarks will be posted on our website following this call. I'd also like to let you know that Hasbro Management will be participating in the Wolfe Research Leisure Conference on May 11 12th and the JPMorgan TMC Conference on May 22nd. Hope to see you there. Thank you.

Operator

Thank you. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day.

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