Good morning and welcome to the Hasbro First Quarter 2022 Earnings Conference Call. At this time, all parties will be listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Today’s conference is being recorded. If you have any objections, you may disconnect at this time. And at this time, I’d like to turn the call over to Ms. Debbie Hancock, Senior Vice President of Investor Relations. Please go ahead.

Thank you and good morning everyone. Joining me today are Chris Cocks, Hasbro’s Chief Executive Officer; and Deb Thomas, Hasbro’s Chief Financial Officer. Today, we will begin with Chris and Deb providing commentary on the company’s performance, then we will take your questions. Cynthia Williams, President of Wizards of the Coast in Digital Gaming; Darren Throop, President and CEO of eOne; and Eric Nyman, Hasbro's President and Chief Operating Officer will join for the Q&A portion of the call. 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. 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 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 Chris Cocks. Chris?

Good morning. I'm happy to be joining you today to discuss Hasbro's first quarter results and share the efforts our leadership team are undertaking to assess the business and strategic direction of Hasbro. Deb Thomas will speak shortly in detail about our quarterly performance that supports our view of growth for the year. In Q1, our Hasbro teams executed well, growing revenue to $1.16 billion, a 4% year-over-year increase and 7% absent our music business, which we sold last year at the beginning of Q3. Revenues grew in each segment. One of the standout performers for the quarter was our latest MAGIC: THE GATHERING release, Kamigawa: Neon Dynasty, which is our best-selling winner set of all time, beating the prior year set by 28%. Neon Dynasty is the fifth MAGIC set to generate in excess of $100 million and is our third largest set ever. Our overall Games portfolio grew 4% and would have been even stronger. However, we moved our March MAGIC release, Infinity to September to help our supply chain to keep up with robust demand for the base MAGIC business. Our consumer products segment also showed growth, buoyed by MY LITTLE PONY, PEPPA PIG and Hasbro products for the Marvel portfolio and Star Wars. And our industry-leading entertainment capabilities drove a revenue increase of 4% or 22%, excluding $31.8 million of music revenue from last year. TV, film and animated content drove the growth, including deliveries of The Rookie, which was just picked up for Season 5; the premier of TRANSFORMERS BotBots, which was a top 10 kids series on Netflix in its first week; and Power Rangers Dino Fury, which was also one of the top 10 most watched kids shows on Netflix in all markets it launched. For the full year, we continue to project…

Thanks, Chris, and good morning, everyone. Coming off a strong 2021, the Hasbro team delivered a good start to the year. We're excited to have Chris on board, and as he did with Wizards of the Coast, he's looking at Hasbro with a fresh view to our rich opportunities and strengths, bolstered by a disciplined approach to build on the solid foundation in place. We look forward to sharing more with you as the year progresses and in October at our Investor Day. First quarter revenue grew 4% and 6% on a constant currency basis. Each segment had revenue growth. The brand portfolio categories grew and TV, film and entertainment was flat but grew 19% absent music. Our total gaming category grew 4% versus the first quarter last year to $379 million. Total gaming has grown in 10 of the last 12 quarters, reflecting the multigenerational power of connecting through games. For the full year 2021, our total games category was over $2 billion in revenue with an OP margin in excess of 30%. We continue investing to grow our gaming capabilities and leadership. At current exchange rates, we expect full year revenue growth in the low single digits. As we focus on building scale around our largest and most profitable brands, growing our games portfolio and tightly manage our fixed cost, we've increased our operating profit growth guidance to mid-single digits and believe we can achieve 16% adjusted OP margin. The first quarter of 2022 experienced the cost pressures we anticipated and guided to. Higher capitalized input and freight costs in year-end inventory had a negative impact on gross margin. Freight costs remain high, impacting both cost of sales and distribution. Adjusted operating profit was $141.8 million or 12.2%, down from a year ago due to higher product input…

Thank you. At this time, we will be conducting a question-and-answer session [Operator Instructions] Thank you. Our first question will be coming from the line of Eric Handler with MKM Partners. Please proceed with your questions.

Good morning and thanks for the question. Wonder if you could talk a little bit about some of the supply chain issues. Specifically, there's a lot of ships, the container ships right now waiting to dock in -- outside of Shanghai. Wonder if you could just talk about how that's impacting your views. And is there any risk there with getting enough product?

Good morning, Eric. Hey, this is Chris. I'm going to turn this one over to Eric, who can take you through the supply chain situation that we have overall in the first quarter and what we look at for the outlook for the balance of the year. Eric?

Thanks, Chris. Hey, Eric, I'll really pivot to talk about where our inventories are because that's, I think, at the heart of your question. At the start, our Hasbro inventories are in good shape at the end of quarter one. We feel good about our position heading into the balance of the year. Our retail inventories are in good shape as well. We're up a bit in the US, as noted. Quality is good as we head into our strongest events for the balance of the year. And I'll just remind you of some of them, things like Star Wars, Obi-Wan Kenobi, streaming on Disney+, Spider-Man: Across the Spider-Verse, our new My Little Pony and Transformers: EarthSpark animation and Wakanda Forever, knowing that we're in pretty good shape there. We feel at this point pretty good, Eric, about our inventories going into the back half. And I'd also note with regard to supply chain, as Chris noted and Deb noted, in their upfronts, we're excited to also have a world-class leader coming in and joining Hasbro as Shane Azzi is planning on joining Hasbro in May coming from Kimberly-Clark.

Great. And then just a quick follow-up for Darren, if possible. Darren, so congratulations on the Rookie getting renewed for a fifth season. That should give you close to 100 episodes at the end of next year, which should put us in a good position to sell into the syndicated -- syndication market for TV. I know you're on Hulu, but wondering if you could talk about maybe some off-network syndication, how that market is shaping up and where you are with that process?

Yes, sure. Thanks. Thanks, Eric. Yes. So great news on season 5 of The Rookie. The show continues to trend really well and get viewed really well. Really syndication, it turns into -- when we get those episodes back from the broadcaster, we've got an opportunity to go back to market and resell them in a packaged format. There's all kinds of demand right now, Eric. Of course, the streamers are some of our biggest buyers right now in the networks as well. So it's a real good opportunity for the group to go back and tap the market again with a well-loved show. So it's good to see season 5.

Okay. Thank you.

Our next question is from the line of Arpiné Kocharyan with UBS. Please proceed with your questions. Arpiné Kocharyan: Hi. Thank you very much. I have two quick ones. So for operating profit margin, it seems like outlook is better overall, kind of, higher than previously communicated, which is impressive given what we know about supply chain and everything that's going on. It seems like Wizard margin is slightly lower. I was wondering if you could talk about what is better to offset that such that your overall margin outlook is better?

Well, we continue to see a positive mix shift in our overall revenue mix, Arpiné. Our games segment has a very nice operating profit profile. Wizards, we think, is going to grow on the top end of our range, potentially as high as more of our traditional double-digit growth rate. And when we couple that with the great product lineup, the fantastic entertainment and storytelling lineup that Eric talked about, along with some targeted cost savings that we're doing across the organization, we feel like we can raise that operating profit -- adjusted operating profit outlook for the year.

Just to add a bit more detail, Arpiné, just as well. As you look at the business and the cost pressures, we said we would have cost pressures in our gross margins for the first quarter, and we did. Price increases in CP start to hit in the second quarter. Actually, they've already started, and we'll see those to offset some of those higher costs as well as our first price increase in MAGIC: THE GATHERING, in certain sets that come later this year. So as Chris said, it all balances out that high growth gaming business and that focus as well as covering some of the increased costs that we're seeing will help us get to that margin. Arpiné Kocharyan: Thank you. That's super helpful. And then just a quick one on POS. I know you mentioned POS down for Q1, which is not surprising given that Easter shift. I was curious if you could share, if you have, year-to-date Easter adjusted numbers that include the first two weeks of POS in April. And then while we are at it, do you have a week of inventory at retail at quarter end handy?

Well, it's still a little early for a full POS readout on the first quarter. What we can say is, traditionally, the Q1 is one of our smallest quarters. We have a fantastic lineup coming up in following quarters, along with a great entertainment lineup. And we exited the quarter with POS on the positive upswing. We like what the trends are and we see that improving as the year goes. Arpiné Kocharyan: Thank you.

Our next question comes from the line of Mike Ng with Goldman Sachs. Please proceed with your questions.

Hey, thanks for the question and increased disclosures around Wizards. I was just wondering if you could talk a little bit about what the swing factors are for this year to potentially reach the low double-digit top line growth for Wizards? And then, separately, I was just wondering if you could talk a little bit about the longer term mix of tabletop versus digital and when you need to execute against to achieve that? Thank you.

Sure. I will give a very quick answer, and then I'll turn it over to Cynthia Williams, our new President of our Wizards and digital segment. When we look at Wizards, we look at a combination of MAGIC, both tabletop and digital and D&D and the balance of the portfolio. And in Q1, and throughout the rest of the year, we see strength across each of those. And so that's kind of what we're looking at as we look at the mix. We see our tabletop revenues being pretty buoyant and actually growing above our expectations, and we continue to invest heavily in digital. Now that said, as Deb mentioned during her upfront, we have a couple of headwinds on digital in terms of comps. We had a very successful release of Arena Mobile last year, which has kind of settled into a more of a mature kind of growth rate. And we also had Dark Alliance, which was a new video game for D&D that came out in late June last year. We're not going to be comping those. So we think our digital growth is going to be a little bit more muted. But on balance, when we look at the two, we feel good about where the Wizard segment is going. Cynthia, I'll turn it over to you on any further color or commentary to add.

Yes. Thanks, Chris. I think, a few things I'd say is, we still have six additional sets we're going to be releasing this year. Two of those will be in the second quarter, which will be our biggest quarter of the year. You've likely seen that we've announced the release of Streets of New Capenna, which is a new golden age urban setting for MAGIC. Players will identify with and play as one of the five demon mob families. And beyond Streets of New Capenna, you'll see us continue to expand the number of formats and reach new customer segments by expanding our Universes Beyond initiatives, which brings IP from outside of MAGIC into the MAGIC Play system. We are excited about Universes Beyond, given the success we saw last summer with the D&D thing set Adventures in the Forgotten Realm, which set a summer release record. Deb also mentioned that we're taking our first price increase in quite a long time on MAGIC, which will take effect on select card sets starting in July.

And I'd certainly say that Kamigawa: Neon Dynasty being up 28% year-over-year and the best-selling winter set of all time is quite a bullish signal for us. And it should be noted, last winter's set was also the best-selling winter set of all time. So it's record upon record. Mike, you had a second half of your question. If possible, could you rearticulate it for us?

Yes. I was just wondering if you had a view on the long-term mix of tabletop versus digital and whether you see digital becoming an increasing part of the mix. What are going to be the key drivers to get that mix to where you want it to be? Thank you.

Yes. So I would say for this year, we see a fairly stable mix, if not table actually being a slightly higher mix than it was last year, given some of the comps that we have. And over the mid to long term, we see both robust growth in tabletop and digital, with digital as a growing portion of the mix for our Wizards and Digital segment over time. We don't have a specific goal around what that percentage mix should be. Both segments are highly profitable gross margin segments. And so, we like growth in both.

Excellent. Thanks, Chris. Thanks, Cynthia.

Our next question comes from the line of Megan Alexander with JPMorgan. Please proceed with your questions.

Hi. Thanks very much. Just a follow-up on retail inventories. I know you mentioned they're in good shape, up a bit in the US. Are you comfortable with where they are at this point? I know, you talked about later arrival of spring product. Has that all been set at this point? And do you think POS is still constrained at all by channel inventories?

Well, I would say, in Q1, we actually executed ahead of our plan. And so, we feel pretty good about where we're going into for Q2, Q3 and Q4, which is why we're maintaining our guidance, despite some market headwinds that we and we think the whole industry are seeing. We believe that the path to great market -- great performance and great growth is through superior execution and great products. And as Eric mentioned, we think that inventory is filled with great products, and it's going to have a lot of fantastic story-based execution, both from us and our partners at eOne, as well as our license partners like Disney, which has just a stacked lineup of entertainment in the second half of this year. Eric, any further color to add?

Yes. Thanks Chris and Megan. I think it bears repeating that we have a tremendous amount of retail support for the second half of the year in support of our innovative new Hasbro products, as Chris mentioned, Megan, including our action brands like TRANSFORMERS, where we're launching our new Transformer Earth Spark Animation later this year. We have a big Nerf best event planned for September 9th. MY LITTLE PONY and PEPPA PIG, the launch of Starting Lineup, which we announced yesterday, which we're all thrilled about bringing back to the pop-culture consciousness for fans. And in addition, we have the industry-leading games portfolio that Chris noted. And the entertainment is bear repeating as well. We have this big Star Wars launch coming up with Obi-Wan Kenobi on Disney+. As I mentioned prior, Thor: Love and Thunder, Spiderman: Across the Spider-Verse; and Wakanda Forever, all of which lead into 2023, where we have a great slate, inclusive of DUNGEONS & DRAGONS and Transformers: Rise of the Beast. So, as we have our inventory buildup, we're ready for that. And I think that's why we continue to know that we feel like our inventories are in a good position.

That's really helpful. And maybe just a quick one for Deb. You saw some nice leverage in 1Q on royalties and advertising. Both came in a little bit better than where the Street was modeling. How should we think about those two lines for the full year?

I think from a royalty standpoint, as Eric mentioned, we are excited about some things happening later in the year. But as we mix more to Hasbro-owned products, we talked about the growth in MAGIC and D&D and -- terrific growth that we've seen in MY LITTLE PONY with the entertainment we have, we expect royalties to be slightly down year-on-year. From an advertising standpoint, our advertising is focused on -- as always, on the all-important holiday season. However, different launches that we have during the year, it was a bit higher earlier in 2021 due to the Digital Gaming launches that we talked about earlier and some of the entertainment. The one thing I would say for Q3, we had a higher advertising balance because we also have the MY LITTLE PONY movie launch. So, certainly, as we think about entertainment, we would expect that to be the toughest comp for that segment for the year Q3 because of that movie launch, and advertising would have been higher in that quarter as well. But overall, I think we expect advertising in line to slightly down as a percent of revenue just based on mix for the year.

Awesome. Thank you.

Our next question comes from the line of Drew Crum with Stifel. Please proceed with your question.

Okay, thanks. Hey guys, good morning. I just want to go back to the margin question. Maybe looking ahead to next year, can you comment on your expectations there? You recently suggested 16%-plus was the goal. Given that you're targeting 16% this year, is there any change to your view for next year? And then I have a follow-up.

Well, for this year, certainly, we're targeting 16%, and our goal is to always see that rise. I'm going to let Deb take you through a little bit more where we see the midterm and long-term outlook.

Sure. No, absolutely. And as we said at year-end, we believe that we could get back to 16%. We get asked that question constantly. And really with the focus on – focus on scale, gaming, our multigenerational play and entertainment and – we are very – and looking at our cost in great detail. We reiterate guidance that we'll get to that 16% this year. We haven't set out a guidance, but we expect growth from that level in 2023 and beyond, particularly when you look at what we have coming. I mean we have -- we're all very excited about DUNGEONS & DRAGONS and the movie that we have coming early in the year, TRANSFORMERS: Rise of the Beast and all of our partner entertainment that's coming as well. In particular, we look at the D&D Beyond acquisition, which we're excited about. We just said that would be accretive in 2023 and beyond. It's coming. That acquisition gives us a great base and player base as we head into the movie which will expand the number of people who are out there to play D&D Beyond. So, as we look at our total gaming portfolio and all the entertainment we have for 2023 and beyond, we're very excited about what we have ahead of us.

Got it. Thanks. And then my follow-up, as it relates to Europe, I just want to clarify, you mentioned the potential risk of approximately $100 million from Russia. Are you suggesting that you could potentially ship to Russia later this year? I just want to understand that. And has your view of Europe changed in any way? So, this is excluding Russia, any change in view in terms of outlook for the year? Thanks.

So we have paused shipments into Russia and we've been asked the size of our business in the past, so we wanted to quantify that for people and that is exactly what we're doing. And Eric, do you want to comment on the remainder of Europe?

Sure. As we think about -- as Deb mentioned, for Russia specifically, just to clarify again, we've paused all shipments into Russia. That's a situation that we're all continuing to evaluate day-by-day and week-by-week. With regards to the rest of Europe, our European business is in good shape. We were up in POS for the quarter in Europe specifically, and we continue to look forward to that business continuing to grow and improve.

The only item I would add to that is the one thing, I just would point out, I mean, the – we saw in our European business this quarter, it was very strong absent FX. And the one currency -- there's really two currencies that have significantly impacted us year-on-year. One is the Euro. So, a stronger dollar against the euro, I think it's down about 9% from our average rate for last year. And then the yen is the other one, which more significantly impacts our Wizards of the Coast business. But just for Europe, I look at exchange rates, just could have an impact for us. But on a constant currency basis, the business is doing very well.

Got it. Okay. Thanks.

Our next question is from the line of Steph Wissink with Jefferies. Please proceed with your question.

Thank you. Good morning, everyone. We wanted to ask two real quick ones on Wizards and maybe this is for Chris and Deb together. Just thinking through the revenue sequencing, you mentioned Q2 is going to be the largest quarter. Q3 has a difficult compare. But help us think through just the cadence? And then the same question on the costs on the investment side. The margins – incremental margins have been a bit lower than we would have expected. So, I just wanted to think through the timing of some of the investments and when you expect to realize the benefits of those? Thank you.

Yes. So Q1, we expect it to be a good quarter for Wizards and it turned out to be a better-than-expected good quarter for Wizards, despite even moving a release in September. Q2, we expect to be the biggest quarter that we've ever had because last Q2 was our biggest quarter as well. So we think that will be comping favorably based on just the number and quality of releases that we have. Q3, we also expect to be a significant quarter. But just based on comping year-over-year and the types of formats that we have releasing, it likely will be flat to down. And then Q4, we expect another growth quarter for the business as well, again, just based on the nature of the formats and type of releases that we have.

And then with respect to the investments, as we look over the past, we've invested over $1 billion in the Wizards of the Coast and Digital Gaming business, and it's grown over 150%. We continue to make those long-term investments. We've talked about the investments being in talent. We have the opportunity, and we're very excited to have Cynthia on the call with us today. She's a great new talent, just one of many, that we've been able to bring to Wizards of the Coast, and we will continue to make those investments to drive that long-term profitable growth.

Okay. Deb, if I could, just for clarification as well, the guidance for Wizards does not include the D&D acquisition. Is that correct?

D&D Beyond acquisition is with -- that is within our guidance. As you recall, they were a good partner of ours before. So we did have licensing revenue from them. However, as we look to the future, we expect that to be an even greater benefit as we brought them into our group. And we have that great talent that came with the acquisition as well.

We expect the acquisition to close in mid- to late Q2. So our guidance would incorporate Q3 and Q4. And then a lot of the integration -- meaningful integration would be back half loaded or into 2023.

Got it. That’s helpful. Thank you very much.

Our next question comes from the line of Jaime Katz with Morningstar. Please proceed with your question.

Hi, good morning. Thanks for taking my question. First, can you give us some insight on what you learned in your due diligence process of the D&D Beyond acquisition and how you might utilize that to penetrate a broader part of the total addressable market with Arena?

Well, when we looked at the D&D Beyond acquisition, we've been partnered with D&D Beyond since they were founded back in late 2017, 2018. They were -- we were the exclusive licensor and they were a digital distributor for us. So we had a lot of unique insight into the value of that platform, the growth of that platform and the nature of the user base on it. And so we've been in discussions with Fandom for many quarters in terms of bringing D&D Beyond into the Wizards family. And I think we had some great discussions. I think we had a really mutually compelling deal where both sides got a lot of value for the asset. And we see that asset only accelerating in value under Wizards’ ownership. Having our biggest digital content platform paired with the actual content creation team, there's a lot of potential synergies. There's a lot of international growth vectors we can do. There's a lot of new exclusive content we can do. We've talked a lot about universes beyond in MAGIC, which is this concept of thinking about MAGIC as a play system and bringing in outside brands or outside IP into that play system. We see potential for that with D&D as well, and we think D&D Beyond can be a primary hub for that. And then we see a lot of e-commerce and direct opportunities working in partnership with our Hasbro Pulse team to have physical digital tie-ins that are unique to the platform. So the combination of like those business upside opportunities and then really getting this great tight connection with the 10 million customers who play on that platform, which is the majority of customers who actively play D&D, it's a fantastic learning opportunity for us and, to your point, very similar to what we've seen with Arena, where we build this relationship with our customers. It's a great incremental business opportunity and a fantastic learning platform for us to understand how people are playing our games, what do they want to purchase and how can we make our products better. And I think that's been an important part of our segmentation approach for MAGIC over the last couple of years, and I think it's going to become an increasingly important part of our D&D segmentation and product development approach as well. And to cap all that off, in 2020 -- March of 2023, we're going to have a blockbuster film coming out with DUNGEONS & DRAGONS. We have a lot of streaming entertainment on tap that our eOne team is planning. We've got a big consumer products push for 2023. And then we'll add on top of that the 50th anniversary of DUNGEONS & DRAGONS in 2024, where that Entertainment, Consumer Products and gaming momentum will continue. So we see a lot of growth vectors and a lot of lifts for D&D with the D&D Beyond platform being central to that.

Okay. That's helpful. And then I'm sure you guys don't have any comment, but if there's anything you'd like to share about Alta Fox with us, I'd be curious to hear it? Thanks.

No. We're here to comment on our earnings, and we're very focused on that. We will not be commenting on Alta Fox today.

Perfect. Thank you guys.

Our next question is coming from the line of Fred Wightman with Wolfe Research. Please proceed with your questions.

Hey guys, good morning. Last quarter, you had talked about the expectation that the US industry growth rate would slow or potentially even decline. I'm wondering if you have any updated thoughts on the full year outlook?

Yeah. Our view on the market is there's a lot of factors at play. There's inflation that's pinching consumers' pocket books. There's continued supply chain headwinds, and there's a lot of geopolitical uncertainty in the marketplace right now. Regardless, though, of if the market goes up or is down or is flat, we believe in focus and scaled execution. Having great product innovation, coupling that with fantastic storytelling and just executing the heck out of that with our channel partners and our general licensing partners overall. And so we believe that we can grow in any market context, and that's what underlies our overall guidance for the year.

Okay. And then you gave us a little bit of detail just from an inventory sequencing perspective and how that's going to shake out for the balance of the year. But do you think that we could actually see some change in the revenue in cadence? Is that potentially getting pulled forward just based on conversations that you're having with retailers, or is it similar from a cadence perspective on a year-over-year basis?

I think the cadence from selling into our retailers is very similar year-over-year. We did have, as Eric mentioned earlier, certainly, as we look at a direct import business, that's coming directly to our retailers, and it's really their order pattern. They've got a bit more on the water as well. As they think about that, they may be pulling in a bit earlier, but we expect the cadence to be very similar to last year. We want to make sure we have products in our own held inventory, so we don't end up having out-of-stock issues and at a very all-important holiday season and around all this great entertainment we have coming this year.

Makes sense. Thanks guys.

Our next question is from the line of Gerrick Johnson with BMO Capital Markets. Please proceed with your questions.

Hey, good morning. Getting over cold, so please bear with me. I want to talk about your partner portfolio. Chris, you mentioned that you're evaluating brand positioning. And the Disney Princess license and the Trolls license are going to your primary competitor. Just wondering if that's a strategic decision to concentrate on your own IP. Or did you bid on it and miss out? And how should we think about your commitment to other partner licenses?

Well, I don't think I'll comment on any specific license or any specific partner. But, in general, as we think about partners and we think about co-brands, we see that as a continued important part of our mix. Particularly as you think about our themes of games, multigenerational play in entertainment and direct-to-consumer as our big investment areas. Partner co-brands will be an increasingly important part of that mix. But dedicated partner lines, like our partner brands, as we call them today, will also continue to be important. And we'll be investing across the line on those. In particular, we see a lot of great opportunities to bring those brands into what we term as play systems. And those can be gaming play systems or they can be collectible play systems. I think our Nerf business and our Monopoly business have been particularly adept at that historically. I think the announcement starting lineup has a -- is a huge platform for fantastic sports partnerships across the world. I think our gaming portfolio, particularly MAGIC and D&D, offer a lot of fantastic co-branding relationships. And we'll continue to lean into how we do that on action figures and collectibles across our lineup with Hasbro Pulse being a real focus area for that. And so we think -- when we think about that kind of perspective, games, multigenerational play in direct, we see a lot of growth opportunities for partners in our mix. And, importantly, we see a superior operating profit margin associated with that as well.

Okay, great. Thanks. And Deb, you mentioned price increases have already started. It might be early, but what are you seeing in terms of elasticity of demand from the consumer?

Well, it's early. They just started, and we don't have a lot of that POS data and as we spoke about now. But really, we're looking to take those price increases on the product, just to cover our cost. And we've been very thoughtful about what we increased. We continue to try to engineer a product if we can take -- if we can change a few things to give better value to the consumer at the lower price, we continue to do that. Right now, Gerrick, we're facing -- and I'm sure you've read about it, paper allocations and card stock allocations. So we're trying to acquire some of that ourselves, so we don't have an issue. But, as we look to it, we've been very, very thoughtful about taking price increases to not hurt the consumer and to not have elasticity issues with that in all of our product lines. It's not just the CP Group. It's also impacting our Wizards of the Coast business through MAGIC and D&D and Duel Masters as well.

Sure. All right. Thank you.

Feel better, Gerrick.

Thank you. Our final question today is from the line of Alok Patel with Berenberg Capital Markets.

Hey, guys. Thanks for the question. I wanted to ask about the 16% operating margin target. What's built into that target? Is the improvement being driven by price measures outweighing cost headwinds or a favorable shift in the sales mix?

Well, I think I'll open this up to everyone on the call, but I'll give you a general thematic. A lot of it is sales mix, the type of products that we're driving. And again, I'll go back to the themes of games, multigenerational play in entertainment and direct are things that we're definitely leaning into and we see superior operating profit margin outlook for. And then we also are evaluating our business, evaluating our structure, and evaluating where we're making investments. And we've seen some cost savings opportunities and reinvestment opportunities in higher margin businesses as a result of that. So, when you take those two factors into play, we -- it gives us confidence in raising our outlook for our adjusted operating profit margins for the year. In terms of pricing, pricing is ultimately up to the retailer at point of sale. And most of our pricing outlook really is to cover costs, both in terms of freight as well as the bill of materials.

Got you. That makes sense. Just a quick becoming a more digitalized gaming-oriented company, how does that kind of alter the historically recessionary, resilient nature of Hasbro? I guess, bringing it another way, which is of the coast and entertainment, how resilient are those segments in an economic downturn compared to Consumer Products?

Well, Wizards of the Coast has grown for, I think, 12 out of the last 13 years. And that growth spurt started in 2008, 2009. So, we see games as pretty economically resilient. And generally speaking, we see the toy industry as being a proven economically resilient industry to economic headwinds.

Got you. okay, that’s all I had. Thank you.

Thanks.

Thank you. At this time, we've reached the end of the question-and-answer session. I'll now turn the call over to Debbie Hancock for closing remarks.

Thank you, Rob and thank you, everyone, for joining the call today. The replay will be available on our website in approximately two hours. Additionally, management's prepared remarks will be posted on our website following this call. Thank you.

This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.