Gina Goetter
Chief Financial Officer at Hasbro
Thanks Chris, and good morning, everyone. 2023 marked an important milestone in our transformation towards a more streamlined and profitable toy and game company. As Chris mentioned, transformations take time and amidst the tough industry backdrop, I'm proud of the progress the Hasbro team made over the past several quarters in resetting the business and getting us in the best position for 2024. Before I touch on the financial highlights from the past year, I want to recap three major actions we took and how to think through their impacts. First, we successfully closed the sale of the eOne film & TV business to Lionsgate, and we use the proceeds to reduce debt by $400 million, which will result in annual interest expense savings of approximately $25 million.
In addition to reducing our leverage, the sale of eOne frees up capital to invest in higher growth initiatives, while allowing us to continue monetizing Hasbro IP in an asset light structure. In conjunction with the sale and the change in the business strategy for family brands, namely Peppa Pig and PJ Masks, we recorded a non-cash goodwill and intangible asset impairment of approximately $1 billion, which you will see in our reported results. As we look to 2024, besides the reduction in interest expense, we also expect to see an improvement in operating margin as well as an improvement to cash flow given the reduction in production spending.
Second, in Q4, we accelerated efforts to clean up our excess inventory. As I had mentioned last quarter, we were focused on starting 2024 in a cleaner position and would remain agile in taking actions consistent with broader category momentum. While we landed within our revenue guidance, we did not see the holiday season pickup that we were hoping for, and as a result took more aggressive actions in bringing inventory levels down over 50% from the prior year.
Our inventory is now running well below pre-pandemic levels, and we believe this improved position will allow us to drive higher value retail distribution and return focus to upcoming toy and game innovation. We also expect annual savings of roughly $10 million from exiting overflow locations previously used to store excess inventory. And while this was the right decision for the long-term health of the business, the near-term impact from accelerating this cleanup resulted in a roughly $130 million non-cash impact to operating income.
Lastly, as part of our operational excellence program, we made the difficult decision in Q4 to reduce the size of our workforce. While these decisions are never easy, this move will enable cost savings which will improve profitability and fuel investments towards long-term growth around toy and digital games innovation.
Moving to our financial results and business segment highlights. In Q4, we saw a continuation of the trends seen throughout much of the year. Total Hasbro revenue of $1.3 billion was down 23% versus last year. Wizards of the Coast in digital gaming revenue increased 7% behind ongoing contributions from the award-winning Baldur's Gate III and Monopoly Go. Consumer products declined 25% due to the planned business exits, broader category declines, and an enhanced focus on clearing inventory.
Q4 adjusted operating loss of $50 million was down year on year, mostly driven by nonrecurring and noncash charges of $168 million, which includes the $130 million inventory write-off. We believe the cleanup efforts are behind us as we are starting 2024 at much healthier levels compared to prior years, and our retail inventory is at an acceptable level.
Q4 adjusted net earnings were $52 million, with diluted earnings per share of $0.38, also down versus the prior year, primarily due to the aforementioned nonrecurring charges. For the full year 2023, total Hasbro revenue of $5 billion was down 15% versus 2022, and within our previously stated guidance range. Wizards of the Coast and digital gaming revenues grew 10% ahead of our guidance, benefiting from the success of Baldur's Gate III Magic, the Gathering and Monopoly Go.
Consumer products revenues were down 19% for the full year, driven by planned business exits, softer industry trends and stronger inventory management on behalf of our retailers. Adjusting for the exited brands and markets, revenue would have declined by 15%, and despite the tougher category backdrop, we delivered some bright spots within our toy portfolio, including Transformers, Twister Air, Furby and GI Joe.
On a reported basis, the entertainment segment revenue declined by 31% as the writer and actor strikes impacted content deliveries. Family brands revenue grew 6% from streaming deals of animated content in support of Hasbro's brands.
Total Hasbro Inc. 2023 adjusted operating profit was $477 million, down 48% versus last year, primarily driven by the non-recurring expenses as well as lower revenues. 2023 adjusted net earnings of $349 million, or $2.51 per diluted share, was down 44% versus last year. Besides the charges for inventory, earnings were negatively impacted by content impairments and higher royalty expense, partially offset by our cost savings program and a one-time tax benefit.
Operating cash flow for the full year was $726 million, well ahead of our guidance and nearly double from the prior year, driven mostly by a working capital benefit of approximately $350 million, due to the inventory cleanup efforts. We ended the year with $545 million in cash on our balance sheet and reduced debt by approximately $500 million. We also returned $388 million of capital to our shareholders via dividends.
Before I move to guidance for 2024, I want to frame how we are thinking about the year ahead from an operational perspective, and in particular how we're looking to turn around the consumer products business. In 2023, we took the necessary steps in our transformation to reset the business. This year, with the right foundation in place, we are focused on reinvigorating innovation across the portfolio, while continuing to drive operational rigor, which we expect to pave the way for sustainable, profitable growth.
The near-term model that we're building is one where cost productivity provides the fuel to innovate and grow the business, and in 2024 there remains a significant opportunity to improve the underlying profitability while rebuilding its innovation engine. These two go hand in hand and align with our overarching strategy of focusing on fewer, bigger and better brands.
Over the past several quarters, we have been mobilizing around this imperative and taking actions to simplify and prioritize resources on our largest portfolios and biggest bets. One of the single biggest contributors to complexity reduction relates to our product portfolio.
Moving into 2024, we have eliminated about half of our SKUs. These SKUs were only 2% of our revenue and were duplicative and unprofitable, clogging the network and creating cost for us and our retailers. Along similar lines, we made the decision to move to an out-license model for brands, where we determined their respective path to scale and profitability as an owned and operated entity did not meet our internal threshold. In 2024, FurReal friends and EASY BAKE oven will transition.
While there are short-term impacts to revenue from this model shift, we ultimately can expect greater operating profit dollars from out-license IP, and it allows us to focus resources back to our core brands.
In 2023, we started the work to streamline our supply chain and improve the efficiency of the organization, and in 2024 we will be continuing these efforts by reaching further upstream to unlock value in our product design and manufacturing processes. We are taking an organization-wide focus across the supply chain, brand teams, product development, procurement and manufacturing to identify waste and redefine the right design to value equation for each product.
Ultimately, this will culminate in higher margins and contribute to an improved play experience. We started this work last year on select brands within our Hasbro gaming portfolio and will be rapidly extending this approach to two of our biggest brands, Nerf and Play Doh. Also, within our supply chain, we are building new capabilities within planning and forecasting to ensure that inventory levels, both owned and retail, remain within the desired thresholds.
We made significant progress coming out of 2023, and these updated processes and tools will ensure that we maintain a healthy inventory position.
Since coming on board at Hasbro, I've talked about the imperative to bring costs down within managed expenses to stop the dynamic of overhead growing faster than revenue, particularly within the consumer product segment. In December, we announced the next round of actions to address the organizational structure.
We have also introduced zero-based budgeting as a tool to help us optimize our spending and ensure dollars invested are driving the right actions in support of our strategy.
And finally, we are continuing to enhance our capabilities around consumer insights, revenue growth management and marketing effectiveness as core drivers in strengthening our foundation and enhancing product development.
Looking forward to the 2024 holidays, we have more innovation compared to last year, that's backed by insights and stronger pricing precision. This, coupled with stronger planned execution with our retailers, will enable Q4 growth across the toy business.
Turning to guidance for 2024 and looking more closely at the two main operating segments, total Wizards revenue is forecasted down 3% to 5%. The decline is primarily a result of the strong growth delivered in 2023 behind the launch of Baldur's Gate III and the Magic Lord of the Rings set. Looking at each of the pieces, we are planning for growth within D&D with the upcoming update of the fifth edition and the continued expansion of D&D Beyond. Magic will have the same number of releases in 2024 as last year, but revenue will be flat to down as we comp Lord of the Rings. It's important to call out that Magic will be back to growth in 2025 as we expand our universes beyond lineup.
Licensed digital games will be relatively flat. The revenue from Baldur's Gate III will begin to taper down as we move through the year and will be partially offset by the continued momentum of Monopoly Go. With the success of the game, we are now anticipating that we will begin to record revenue higher than the contract minimum guarantee in the back half of the year.
From a phasing standpoint, we expect Wizards revenue to grow in the front half with the decline coming in the back half as we comp the huge launches. Wizards operating margin will be between 38% and 40%, which will be up 200 basis points to 400 basis points versus last year. The margin improvement is a result of a favorable mix shift within digital, lower royalty rates across Magic and strong cost management within operating expenses.
Margins are also benefiting from supply chain cost productivity more than offsetting the inflation. For consumer products, revenue will be down 7% to 12%. About half of the decline is due to actions we've taken to improve profitability, including the planned business exits, as well as a reduction in unprofitable closeout revenue. Given the significant inventory cleanup executed at yearend. The other half of the decline is a result of prevailing category trends.
Overall, we are planning to grow share in the categories in which we compete, and are leaning into innovation green shoots with step ups in Hasbro gaming, Beyblade, Play Doh, Furby and Nerf, and we are also adopting a more agile approach with our marketing dollars to better target consumers and increase the effectiveness of the spend. We are forecasting revenue trends will improve as we move through the year with steeper declines in Q1 and Q2 and stabilization coming in the back half of the year behind innovation, marketing effectiveness and maintaining healthy retail inventory levels heading into the holidays.
A key focus for 2024 is improving the profitability of toys, and we are forecasting operating margins to be between 4% and 6%, which is 500 basis points to 700 basis points better than last year. Approximately 400 basis points of improvement is driven by the lap of the non-recurring inventory charges, and this is almost completely offset by the anticipated volume declines and associated deleverage impact.
The additional margin expansion is driven by a combination of favorable product mix due to less closeout volume, supply chain cost savings more than offsetting inflation, reduced complexity across the network, and operating expense reductions. Margin will also be positively impacted from the work on SKU elimination and design to value which I mentioned earlier.
For entertainment, stripping out the impact of the eOne divestiture revenue will be down approximately $15 million versus last year, and operating margin will show significant improvement driven by operating expense reductions as well as lapping the impact of the D&D movie impairment in 2023. We will continue to report entertainment as a separate segment for 2024, albeit on a much smaller base.
As part of the 2024 guidance, we are increasing our gross cost savings target through 2025, from the $350 million to $400 million communicated in December to $750 million. Through 2023, we have delivered approximately $220 million of gross cost savings and anticipate a sizable step up as we move through the next two years. Roughly half of the gross cost savings will drop to the bottom line as we focus on improving profitability and the remaining dollars will be reinvested back into the business to support growth initiatives, including the reinvigoration of toy innovation and the continued investment in the gaming business.
With the improvement in operating margin across all segments, total Hasbro Inc. EBITDA is forecasted to be $925 million to $1 billion, up $215 million to $290 million versus the prior year. The positive impact from the cost structure reset as well as the lap of the onetime inventory cleanup in 2023 is more than able to offset the revenue decline and cost inflation.
We are planning for relatively flat owned inventory levels in 2024 and estimate approximately $225 million of project capital to support growth initiatives and invest back into the infrastructure, as we continue to rebuild, the underpinning of the operation.
Ending cash will be slightly down versus 2023, driven by relatively flat owned inventory levels, increased capital project spending and additional costs associated with the restructuring actions announced in December.
From a capital allocation standpoint, our priorities remain to first, invest behind the core business, second is to return cash to shareholders via the dividend, and third, to continue progressing towards our long-term leverage targets and pay down debt. As you heard Chris mention, we remain committed to our category leading dividend and believe that the changes that we've made within working capital to free up cash, as well as the changes we're making on the broader cost structure, provide enough cash flexibility to deliver on the capital allocation priorities.
The board has declared our next quarterly dividend payable in May and keeping consistent with industry best practices as we move through 2024, we will be shifting the declaration of the dividend to more closely align with the record dates.
And to close, looking out beyond 2024, we expect that the consumer products business will return to low single digit revenue growth, and that Wizards will return to mid to high single digit revenue growth. With our step up in cost savings, we remain committed to getting to 20% operating margin with the potential to reach that milestone before 2027.
And with that, I'll turn it back to Chris to wrap up.
