aiouh
Explorer
Hasbro, Inc., Q1 2025 Earnings Call, Apr 24, 2025
MD&A
Unknown Executive
[Audio Gap] Well positioned. Our U.S. games business benefits from largely digital or domestic sourcing, maintaining low COGS and healthy margins. We make many of our board games just up the road in East Longmeadow, Massachusetts. Not far away from where Milton Bradley printed his first board games in the 1860s. Wizards has low tariff exposure with sub-$10 million in expected duty for the year.
Most of our domestic supply is produced in North Carolina and Texas, with the balance from Kyoto Japan. Our licensing business is primarily digital or minimum guarantee based with manageable partner exposure. While our Toys segment faces higher exposure we're responding proactively. Our asset-light sourcing model means we can rapidly shift production to help mitigate tariff impacts.
We're accelerating our $1 billion cost savings plan to offset tariff pressures internally while targetive pricing actions remain likely, we are prioritizing key price points and strengthening retail partnerships. We will work to capture market share and shelf space through our growth and optimize brands at critical consumer-friendly price points, particularly $9.99 and $19.99. We want hundreds of millions of families and fans we serve each year to keep experiencing unbeatable value at the shelf, whether it's an all-new home play set for Peppa Pig and our growing family, a play booster for Magic's Final Fantasy Universes Beyond collaboration or a hot new action figure for Marvel's upcoming fantastic for movie.
We're also thinking long term as we play to win especially wit partners. A superpower of Hasbro's This week, we announced the extension of our multi-decade licensing agreement with Disney Consumer Products for Marvel and Star Wars with enhanced category rights in preschool, PLAY-DOH, action and role play. Combined with the Marvel agreement for Match [indiscernible] collaboration with one of the world's most valuable brand portfolios has never been stronger.
Expect more announcements of new partnerships with leading brands across toys, games and video games aimed at all demographics, further solidifying our position for long-term success. Looking ahead, while we remain hopeful for a more more predictable and favorable U.S. trade policy environment, we must acknowledge that even with Hasbro's relative strength and flexibility, logistics are becoming complex and changes in receivables and shipping dynamics present a challenge. Ultimately, tariffs translate into higher consumer prices. potential job losses as we adjust to absorb increased costs and reduced profit for our shareholders.
Our guidance is unchanged, supported by our robust games and and licensing businesses our strategic flexibility but prolonged tariff conditions create structural costs and heighten market unpredictability. Hasbro produces a substantial amount of product in the U.S. and around the world. Has served as an engine of local jobs, creativity and innovation for over 100 years and licenses to hundreds of American companies, employing tens of thousands of American workers across toys, games, entertainment experiences and more.
As such, we fully endorse the Toy Association's advocacy for 0 tariffs on toys and games globally, either on U.S. exports, or on imports. Other toy associations around the the world are quickly joining advocacy efforts. We believe there should be free and fair trade for toys, an industry critical not only to hundreds of thousands of American jobs but also to the joy and developmental well-being of millions of children, families and fans across the U.S. and worldwide.
Before handing it over, let me extend my sincere thanks to our team and partners. Our strong performance amid challenging conditions can be directly attributed to your dedication, agility and and shared ambition. In an unpredictable environment, our greatest assets remain our people our value partners, less to play to win. Now over to Gina.
Gina Goetter
Chief Financial Officer
Thanks, Chris, and good morning, everyone. We are off to a strong start in 2025, delivering growth across revenue, profit and operating margin while continuing to execute on our strategic priorities. Our Q1 performance reflects early traction from our play-to-win strategy, ongoing transformation initiatives and a continued focus on cost discipline and profitable growth.
Net revenue in the first quarter was $887 million, up 17% versus prior year, driven by growth in Magic and MONOPOLY GO. Adjusted operating profit increased 50% to $222 million, reflecting a 25.1% adjusted margin, a 5.5 point improvement over last year due to the favorable business mix. Adjusted earnings per diluted share rose 70% to $1.04, driven by top line growth, margin expansion and broader expense management. From a segment perspective, Wizards of the Coast and digital gaming once again led the charge. Segment revenue grew 46% to $462 million with growth across both Magic Table top and digital licensing.
Magic delivered a strong quarter with revenue up 45% driven by healthy demand for recent releases and ongoing engagement in backlog content. The strong performance in Q1 reinforces our confidence in the momentum and stickiness of the business across our core consumers. Our licensed digital gaming portfolio grew 56% in Q1 driven by MONOPOLY GO lapping the minimum guarantee for the final quarter. This game is now celebrating its second anniversary and has announced the next third-party IP collaboration with [indiscernible] and Star Wars, launching in the game on May 1.
Operating margin in Wizards reached 49.8%, up 11 points year-over-year, driven by mix and leverage from top line growth. Consumer Products revenue declined 4% to $398 million slightly better than our original expectations behind strength in licensing. Importantly, the segment's adjusted operating loss of $31 million improved 18% versus last year and adjusted operating margin improved 140 basis points, reflecting progress on our cost transformation or promotional activity.
Through the first quarter, we saw minimal impact from tariffs across our [indiscernible] or customer order patterns. The Entertainment segment declined modestly with revenue down 5% to $27 million, primarily due to deal timing. Segment adjusted operating profit held flat year-over-year at $17 million. Across total Hasbro, we continue to unlock savings from our transformation.
Total adjusted EBITDA was $274 million, up 59% versus the prior year, with margin expansion supported by $22 million of gross cost savings from our operational excellence initiatives. On the cash side, we generated $138 million in operating cash, funded $52 million in strategic investments and returned $98 million to shareholders via our dividend.
We also paid down $50 million in long-term debt, keeping us on track to meet our
[Audio Gap]
In the pacing of some of those. But by and large, I mean, the strength of Wizards and the momentum that we have there in and of itself would have probably taken us over if that red bar wasn't there.
Unknown Analyst
Got it. That all makes a ton of sense. And then maybe help us sort of handicap the risk of the rest of the world? It seems to me that at least one of the incremental surprises coming out of Liberation Day was the heavy-handed nature on the rest of of the world, right, outside China? And so much of your sort of diversification strategy to move out of China into some of these other countries that are now being tariffed to a certain degree, at least that 10% number.
And who knows what's ultimately going to happen in July. But maybe help us understand the CP exposure to the rest of the world, specifically those 10% tariff countries? And how you think about, again, moving production out of China a lot of these countries seem like Safe Haven. And I don't know, how do you even make decisions in this current environment?
Christian Cocks
President
Well, I think that goes back to first principle, just answering your last question, which is don't overreact. Our assumption is that we will get to a a reasonable and logical trade policy ultimately once all the negotiations are done. We're not making any kind of hopeful assumptions that, that happens soon. Our guidance is based off of 145% and 10% reciprocal everywhere else and we're assuming that, that holds for the balance of the year.
If the reciprocal tariffs increased and China did not change, that would be a headwind, obviously, and we would have to take that into account. In terms of how we're thinking about the the rest of world in terms of [indiscernible] not just as a supply a source of supply, we see it as an opportunity. Our business is under indexed a bit inside of Europe. We see a lot of retailer excitement for some of the new product lines we have. The new Peppa Pig products that we have, all the great Marvel stuff that we have coming out.
Magic certainly is looking like it's going to be a winner in markets like Europe and Japan. So we see some potential for upside there, especially as we kind of prioritize where our where our SKUs are going and marketing dollars are going in terms of market upside. APAC likewise, we see some opportunities there.
And then the other thing that we're doing a lot of is starting to look at ODMs in Vietnam, India and even China, in terms of more value SKUs and getting more aggressive about real low price points and driving some breakthrough pricing opportunities for markets like LatAm and Southeast Asia via our everyone plays initiative as part of Play-to-Win so I'd say $145 million and [ TAM ] is our base outlook.
If that changes to the negative, it certainly is a headwind. What we don't necessarily have factored into our guide though is, hey, is there any market upside in terms of kind of shifting SKUs and shifting our marketing priorities. And so we'll play that out over the next couple of months.
Unknown Executive
Yes. With our team, we're really trying to avoid the analysis paralysis and the churn that, that can cause on decision-making. So we're staying very focused on what is known. And right now, what is known as the $145 million andmillion and the $all of the moves that we're making, both within our supply chain as well as with our customer base, we would categorize as no regret moves. Like it's good for us to have a more diversified footprint. So we'll just keep moving on that path.
Operator
Our next question is from Arpine Kocharyan with UBS.
Arpine Kocharyan
UBS Investment Bank, Research Division
You already provided -- sorry to go back to the tariff sensitivity slide, but could you maybe clarify is it fair to assume that those mitigating efforts will include bringing China exposure for consumer products below -- substantially below the 50% mark. I think you had given 40% exposure for China for 2026 before. I guess do you have a sense of where that could be for next year as of today, to the extent you can predict that.
And then in terms of other mitigating factors, whether it's cost saves to find ways to make things cheaper or taking pricing, is it possible for you to detail sort of assumptions there, let's say, making things cheaper could offset x percent of impact and then pricing will offset the the rest to extent it's possible to quantify. I know it's very difficult at this point. You're probably looking at thousand factors.
Gina Goetter
Chief Financial Officer
Thousand factors, that's probably right. Good questions. I'll start by saying, first, we are a global company. China is going to continue to remain an important manufacturing hub for us. And while our U.S. Toy and game business is roughly 55% of our revenue, 45% of it is okay with getting goods from China.
So China is always going to be a manufacturing hub for us. As we think about our moves from the 50 , to your point, we said back in February, we're on a path to move to under 40 by 2026. We are speeding that up. So we are accelerating our efforts there. It will -- we're targeting to be below that 40% by 2026. We are still kind of nailing down plans and and final product lines what all this is going to mean with with our -- the supplier base, et cetera.
So I'm not going to give you an exact percentage now. But I think that the path we were on to get to 40 by 2026 is going to be faster than that. As you think about then the mitigating levers that we have, again, I'm not going to give you exact dollars because they're all in the way that you laid it out, they're all kind of muddled together. But there's really -- if you go from that gross impact I'll just anchor to the high end of the range of $300 million kind of gross exposure down to the $180 million, what we're seeing is the net impact.
There's really 3 big things to focus on. And we've talked a lot about the supply chain. That's the first big thing and just how we're both shifting products around our existing manufacturing base, how we're managing inventory levels, how we're then kind of accelerating diversification that provides a big mitigating lever for us. The second piece is and how we're managing our product in the broader portfolio. So we have done a significant amount of SKU reduction leading up -- our SKU kind of rationalization as we led into this year.
We're continuing to evaluate what makes sense in this current environment for the U.S. market. So some of our higher-priced items or products that we just don't think are going to be tenable with -- from a profitability standpoint with 145% tariff on we're taking different choices on. So that's kind of the next lever is that we're really focused on product -- all of our DTV efforts and how that influences product cost, we're accelerating there.
And then the 3rd piece [indiscernible] commercial how we're thinking about pricing and reading the pricing actions, how we're managing our allowances with the retailers. Now all -- and when we talk about allowances, those are all the dollars that are sitting gross to net, how we put those either to better use or drop them altogether. So taken together, the supply chain, how we're thinking about product, how we're thinking about commercial and customer pricing. That's what gets us to kind of that $120 million difference between gross to net.
Arpine Kocharyan
UBS Investment Bank, Research Division
That's very, very helpful, Gina. And then one quick follow-up. Have you done any price elasticity of demand work to basically say x percent of growth in pricing is X percent impact on demand. I know it's difficult, right, especially in this environment. But anything you could share with investors to sort of help them think through pricing as a mitigating factor?
Christian Cocks
President
Well, we have. There's not a lot that I can share publicly since most of it's proprietary, definitely think $9.99 and $19.99 are important. We definitely think innovation and having a toy that has a must-have factor to it, something that the kid asks for and is based off of a passion-based purchase is also super important. And then last but not least, having great brands backed by fantastic fan bases and big entertainment moments is also super important.
And so when you look at like what we just announced with Disney, there's no bigger brands in the toy aisle than Marvel and Star Wars. We're thrilled to be extending our multi-decade partnership with them. We've been working with the Disney Disney -- Walt Company since the 1950s I think Snow White was in Cinderella. We're one of our first collaborations together. And I love their road map, what they have coming up in 2026 and what they just announced at their Star Wars event in Japan a week or so ago for 2027, I think bodes pretty favorably for what the future is for that.
And that's just one partnership in a series of partnerships that you're going to be hearing from us over the next several months and quarters that we're going to bring the best brands to our aisles that have the highest pricing power and the surest demand. And I think that's going to position us favorably over the long term.
Operator
Our next question is from Eric Handler with Roth Capital.
Eric Handler
ROTH Capital Partners, LLC, Research Division
You had pretty significant outperformance from MAGIC in the quarter, at least relative to my model. I wonder if you could sort of rank like where all that upside came from?
Christian Cocks
President
So I think it's a couple of things. We did have a bit of an extra set or half an extra set in terms of a remastered set. Our backlist performed very, very well. And then early ordering for [indiscernible] Dragon Storm has been very strong.
So probably the biggest thing was like the backlist over performance. And then Secret Layer has actually been doing pretty well. I mean the whole magic business is just just -- it's difficult to identify one thing. Really, I think what we're seeing on Magic is an expansion of the player the player base and when you expand base, it's just a great opportunity to engage them with more products and kind of create a network effect amongst the players and the collecting community. And we see that only strengthening as the year goes.
Eric Handler
ROTH Capital Partners, LLC, Research Division
And then one question on sort of manufacturing, like how easy is it to just pick up and leave a China manufacturing plant. How much lead time do you need to sort of switch over to another country? And can you do that before peak manufacturing times for the holidays for this year? Or is this more of a 2026 event?
Gina Goetter
Chief Financial Officer
Yes. Good question. Yes, I would say it's more of a 2026 event. I mean, obviously, the moves and the work is happening now. And it depends on capabilities. There are some countries that have the capabilities and the infrastructure in place. So it's just a matter of kind of the development and quality engineering work that needs to to happen shift.
In others, there is brand-new build of capability. So it kind of runs the spectrum in terms of the length of time. But if you kind of anchor back to what we said in February, it was going to take us a couple of years to move from that 50% down to under 40% and now we're saying, Oh, gosh, we're going to get there a lot sooner. So we're speeding up the time to get that diversification.
Christian Cocks
President
Yes. And it depends on the category, Eric. So like for PLAY-DOH, it's sending the boat to send the boat to the U.S. don't send the boat to Italy from Turkey and then send the boat from China to Europe. For NERF, where we have a very large India-based footprint, we are able to like change production but not necessarily where the SKUs are produced.
So we are changing what the SKU mix looks like inside of the aisle for the U.S. so that we can favor India-based SKUs, which maybe are older SKUs but are tried and true. But the benefit there is most of our competition, the white label competition and some of our other named competitors they're solely China-based so we actually could come to market with a pricing advantage versus them.
So it's category by category. I think where you're going to find China-based manufacturing the stickiest is really anything with electronics, anything with super high end Deco -- and then surprisingly, anything made out of phone except except for [indiscernible] But like foam role play, that tends to be a very specialized set of capabilities of Chinese manufacturing.
Operator
Our next question is from Alex Perry with Bank of America.
Alexander Perry
BofA Securities, Research Division
Congrats on a strong quarter. it, I just wanted to bridge some of your comments on the segment guide. So the outlook for CP unchanged, but now factoring in bigger levels of industry declines. I think you were at sort of flat to down 4% last time in the CP top line guide. You raised the Wizards top line guide pretty significantly, op margins come up, but reiterated sort of consolidated full company guide.
I guess is the is the puts and takes like a lower CPE implied op margin offset by the higher Wizards profit contribution like I just wanted to make sure we're sort of clear on the segment puts and takes.
Gina Goetter
Chief Financial Officer
Yes. Yes. Good question. I mean, I think that we spelled out Wizard, so that should be pretty clear of we're rising both. We're rising both -- raising both the revenue outlook and the operating margin outlook. In terms of CP, we're leaving it unchanged, just given the wide range in potential outcome here. So when you think of the net impact of $60 million to $180 million, if it's on that higher end of the range of $180 million you'll see a higher revenue loss, and you'll see those operating margins to your point, they're going to come down in the mid-single-digit range, just as -- we just can't absorb the entirety of the cost impact in the margin structure.
But if you go to the other end of the range, if we net out there, the trade policy kind of starts to calm down a bit if we don't see as much negative reaction from consumers or our customer order pattern mine study. If we end on that lower end of of the range, we stay then within spitting distance our original guide. So that's why right now, we just don't have enough clarity to narrow that down any further.
Hopefully, by the time we get to July, we're able to provide a bit more precision -- it's a pretty wide guide. But I think how you said it in terms of mid-single digits on CP and then you've got the Wizards both the Wizards upside as as well trying to accelerate all of these cost savings in the pipeline, that's what's helping to absorb it.
Alexander Perry
BofA Securities, Research Division
Really helpful. And then just my follow-up question, I wanted to circle back on on price? And what parts of the portfolio do you have the most ability to raise price? Would you ever consider price increases on parts of the portfolio that seem like theylike they have significant momentum right Magic or will it all be sort of concentrated in the to portfolio where you're seeing the most tariff exposure?
Christian Cocks
President
I think we're going to pick and choose. So pricing is ultimately going to be a discussion with our retail partners and ultimately, what price ends up up on shelf is to them. We're going to work hard to try to figure out how to hit those magic price points for the items that we think are most exciting and/or minimize any price increases associated with hot items that we think have a lot of good innovation.
So we've got a lot of cool products coming out this fall. We're refreshing the entire Peppa Pig line with the new baby on the way. We think PLAY-DOH Barbie is the most exciting new innovation to hit the arts and crafts category potentially ever. We think that's a huge collaboration and happy to be partnering with Mattel on it. Likewise, we have a lot of opportunities across board games and games. Magic is really on fire.
I think our default is to not pass on price wherever possible and instead to drive share and drive shelf space opportunities. That said, we are going to have to raise prices inside of 145% tariff regime with China. We're just trying to do it as selectively as possible and minimize the burden to the fans and families that we serve.
Alexander Perry
BofA Securities, Research Division
Perfect. That's incredibly helpful. Best luck going forward.
Gina Goetter
Chief Financial Officer
Thanks, Alex. Have a good day
Operator
Our next question is from Stephen Lasik with Goldman Sachs.
Stephen Laszczyk
Goldman Sachs Group, Inc., Research Division
Curious if you could update us a little bit more on the conversations maybe you're having at this point with retailers going into holiday. I imagine most retailers are trying to stay as flexible as they can for as long as they possibly can ahead of any potential reprieve on the tariff side. Could you just remind us maybe the the timing of how that plays out throughout the year? And maybe when the last possible moment that retailers would need to make a decision around holiday orders as we head into late summer, and I have a follow-up.
Gina Goetter
Chief Financial Officer
Yes. Yes, the very fluid is how I would describe discussions with our retailers. And to your point, right now in this moment where we're sitting in April, the holidays are a long ways away. So when you think about order patterns, what we are planning for, and I think Chris said it in Q&A here already this morning, planning for Q2 to have a pretty material shift in both kind of DI versus DOM as the retailers themselves are managing their inventories so some of that order pattern that anticipated order pattern that we've seen in Q2 does look different.
As we think about the back half of the year, when we kind of model out our revenue, there's not a material change in terms of the back half of the year really represents about still, call it, 60%, 65% of our revenue base. We expect our inventory to then kind of be more moving out from us to our retailers to be more back half loaded into Q3 and Q4. We don't see any material change in how retailers are thinking about the holidays. But to your point, they are making decisions right now.
Do I take it here in May and June? Or do I wait until we're closer to the holiday resets which are going to happen in, call it, September, October. So that's how we've contemplated our phasing. That's what is all embedded in our guide in the range of outcomes but if you think about what CP is going to look like in Q2, it's going to be a down quarter for us just given the change in the order patterns there. And then we kind of build back as we move through Q3, Q4.
Stephen Laszczyk
Goldman Sachs Group, Inc., Research Division
That's really helpful. And then maybe one on MONOPOLY GO. It looks like revenue has accelerated here in the first quarter. Curious if you could just speak a little bit more to the momentum you're seeing there, what's been working so well. to keep that IP going? And then any updates to your outlook in terms of the decay you're factoring into the guidance?
Christian Cocks
President
Well, I think first and foremost, Scope [indiscernible] made a fantastic game based on a fantastic brand. So it's very sticky. They're having excellent player engagement. They're doing good events with major partners. They just announced a a new one with Star Wars, which I think kicks off in month or so. So they've just been doing a really good job.
And I think they're getting to a more mature place in terms of how much they have to spend in terms of driving new player engagement, new player adoption, which is what which was a favorable aspect of the quarter for us. I think our previous guidance of about $10 million a month in terms of what we'll make is fair for the balance of the year and what we're currently modeling in our outlook.
Operator
Our next question is from Jamie Katz with Morningstar.
Jaime Katz
Morningstar Inc., Research Division
I just want to ask a quick question on POS, which was in the back of of the document the slide deck today. And I guess I'm trying to triangulate the strong revenue performance with sort of weaker market share performance. And I'm wondering if maybe that's a function of just decreasing inventories or working down inventories at retail? Or is there something else maybe that I'm missing?
Christian Cocks
President
We entered the year with pretty lean inventories with our retail partners. And so there is an opportunity there would be kind of what I would say on that.
Gina Goetter
Chief Financial Officer
Yes. Our CP performance in the first quarter was -- the toy part of it was pretty on our planned expectation. As Chris said, we didn't have anything crazy in terms of having a clear inventory and promotional and promotions like that because we came into the year pretty healthy. Licensing was what drove the upside on revenue in the quarter.
Jaime Katz
Morningstar Inc., Research Division
Okay. And then can you talk a little bit about what you guys are seeing at value price points, I think, from other consumer discretionary firms, we're just hearing incremental weakness across that consumer base.
Christian Cocks
President
I don't think we have any real thunderous insights to share with you right now in terms of what the consumer behavior is generally speaking, toys as a category did pretty well in first quarter and Easter kind of went off as expected. So I think people are continuing to buy toys.
Personally, I don't think we're seeing any indication that people are pulling forward like holiday buys or summer buys toys tend to be an occasion-based purchase or a -- just a passion and consumers are behaving normally.
Operator
Our next question is from Kylie Cohu with Jefferies.
Kylie Cohu
Jefferies LLC, Research Division
I'll have the color around CP exposure is super per helpful. But I was wondering to dig into the Wizards exposure a little more. I know it's small. But I do believe you do source some from Japan, but I was curious if there were any other countries to call out or details to add for rest of the world for that segment specifically?
Gina Goetter
Chief Financial Officer
Yes. The exposure for Wizard and Flash Magic is pretty minimal. I mean -- and it's embedded in the Wizards bar in bar in the chart embedded in the Wizards guide. On a kind of 12-month basis, call it $5 million to $10-ish million of exposure, to your point, we do have manufacturer Japan. We do also manufacture over in Europe a bit. The bulk of the manufacturing is coming from the U.S.
Christian Cocks
President
Yes. The only thing in wizards that we import from China is like D&D box sets. So that's actually where -- that's actually a bigger input on the tariff duties I mentioned for for Withers like the Japanese duties MAGIC.
Kylie Cohu
Jefferies LLC, Research Division
Okay. No, that is super helpful. And then just kind of following back up on the POS -- and I think you mentioned that licensing is better than expected. But I was just curious like what were those bright spots specifically that would just be helpful. And kind of what did you see anything around Easter. Obviously, there's a timing shift this year. anything that performs particularly well?
Christian Cocks
President
Well, on licensing, certainly MY LITTLE PONY continued to perform well and had a favorable year-over-year comp MONOPOLY GO is doing quite well. And then in terms of POS for our brands, we had TRANSFORMERS was up dual master -- I'm sorry, Beyblade was up. We had a good quarter in terms of Marvel. Those are probably like the big bright spots for us on POS.
Operator
Thank you. There are no further questions at this time. This does conclude today's conference. We thank you for your your participation. You may now disconnect lines.
MD&A
Unknown Executive
[Audio Gap] Well positioned. Our U.S. games business benefits from largely digital or domestic sourcing, maintaining low COGS and healthy margins. We make many of our board games just up the road in East Longmeadow, Massachusetts. Not far away from where Milton Bradley printed his first board games in the 1860s. Wizards has low tariff exposure with sub-$10 million in expected duty for the year.
Most of our domestic supply is produced in North Carolina and Texas, with the balance from Kyoto Japan. Our licensing business is primarily digital or minimum guarantee based with manageable partner exposure. While our Toys segment faces higher exposure we're responding proactively. Our asset-light sourcing model means we can rapidly shift production to help mitigate tariff impacts.
We're accelerating our $1 billion cost savings plan to offset tariff pressures internally while targetive pricing actions remain likely, we are prioritizing key price points and strengthening retail partnerships. We will work to capture market share and shelf space through our growth and optimize brands at critical consumer-friendly price points, particularly $9.99 and $19.99. We want hundreds of millions of families and fans we serve each year to keep experiencing unbeatable value at the shelf, whether it's an all-new home play set for Peppa Pig and our growing family, a play booster for Magic's Final Fantasy Universes Beyond collaboration or a hot new action figure for Marvel's upcoming fantastic for movie.
We're also thinking long term as we play to win especially wit partners. A superpower of Hasbro's This week, we announced the extension of our multi-decade licensing agreement with Disney Consumer Products for Marvel and Star Wars with enhanced category rights in preschool, PLAY-DOH, action and role play. Combined with the Marvel agreement for Match [indiscernible] collaboration with one of the world's most valuable brand portfolios has never been stronger.
Expect more announcements of new partnerships with leading brands across toys, games and video games aimed at all demographics, further solidifying our position for long-term success. Looking ahead, while we remain hopeful for a more more predictable and favorable U.S. trade policy environment, we must acknowledge that even with Hasbro's relative strength and flexibility, logistics are becoming complex and changes in receivables and shipping dynamics present a challenge. Ultimately, tariffs translate into higher consumer prices. potential job losses as we adjust to absorb increased costs and reduced profit for our shareholders.
Our guidance is unchanged, supported by our robust games and and licensing businesses our strategic flexibility but prolonged tariff conditions create structural costs and heighten market unpredictability. Hasbro produces a substantial amount of product in the U.S. and around the world. Has served as an engine of local jobs, creativity and innovation for over 100 years and licenses to hundreds of American companies, employing tens of thousands of American workers across toys, games, entertainment experiences and more.
As such, we fully endorse the Toy Association's advocacy for 0 tariffs on toys and games globally, either on U.S. exports, or on imports. Other toy associations around the the world are quickly joining advocacy efforts. We believe there should be free and fair trade for toys, an industry critical not only to hundreds of thousands of American jobs but also to the joy and developmental well-being of millions of children, families and fans across the U.S. and worldwide.
Before handing it over, let me extend my sincere thanks to our team and partners. Our strong performance amid challenging conditions can be directly attributed to your dedication, agility and and shared ambition. In an unpredictable environment, our greatest assets remain our people our value partners, less to play to win. Now over to Gina.
Gina Goetter
Chief Financial Officer
Thanks, Chris, and good morning, everyone. We are off to a strong start in 2025, delivering growth across revenue, profit and operating margin while continuing to execute on our strategic priorities. Our Q1 performance reflects early traction from our play-to-win strategy, ongoing transformation initiatives and a continued focus on cost discipline and profitable growth.
Net revenue in the first quarter was $887 million, up 17% versus prior year, driven by growth in Magic and MONOPOLY GO. Adjusted operating profit increased 50% to $222 million, reflecting a 25.1% adjusted margin, a 5.5 point improvement over last year due to the favorable business mix. Adjusted earnings per diluted share rose 70% to $1.04, driven by top line growth, margin expansion and broader expense management. From a segment perspective, Wizards of the Coast and digital gaming once again led the charge. Segment revenue grew 46% to $462 million with growth across both Magic Table top and digital licensing.
Magic delivered a strong quarter with revenue up 45% driven by healthy demand for recent releases and ongoing engagement in backlog content. The strong performance in Q1 reinforces our confidence in the momentum and stickiness of the business across our core consumers. Our licensed digital gaming portfolio grew 56% in Q1 driven by MONOPOLY GO lapping the minimum guarantee for the final quarter. This game is now celebrating its second anniversary and has announced the next third-party IP collaboration with [indiscernible] and Star Wars, launching in the game on May 1.
Operating margin in Wizards reached 49.8%, up 11 points year-over-year, driven by mix and leverage from top line growth. Consumer Products revenue declined 4% to $398 million slightly better than our original expectations behind strength in licensing. Importantly, the segment's adjusted operating loss of $31 million improved 18% versus last year and adjusted operating margin improved 140 basis points, reflecting progress on our cost transformation or promotional activity.
Through the first quarter, we saw minimal impact from tariffs across our [indiscernible] or customer order patterns. The Entertainment segment declined modestly with revenue down 5% to $27 million, primarily due to deal timing. Segment adjusted operating profit held flat year-over-year at $17 million. Across total Hasbro, we continue to unlock savings from our transformation.
Total adjusted EBITDA was $274 million, up 59% versus the prior year, with margin expansion supported by $22 million of gross cost savings from our operational excellence initiatives. On the cash side, we generated $138 million in operating cash, funded $52 million in strategic investments and returned $98 million to shareholders via our dividend.
We also paid down $50 million in long-term debt, keeping us on track to meet our
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In the pacing of some of those. But by and large, I mean, the strength of Wizards and the momentum that we have there in and of itself would have probably taken us over if that red bar wasn't there.
Unknown Analyst
Got it. That all makes a ton of sense. And then maybe help us sort of handicap the risk of the rest of the world? It seems to me that at least one of the incremental surprises coming out of Liberation Day was the heavy-handed nature on the rest of of the world, right, outside China? And so much of your sort of diversification strategy to move out of China into some of these other countries that are now being tariffed to a certain degree, at least that 10% number.
And who knows what's ultimately going to happen in July. But maybe help us understand the CP exposure to the rest of the world, specifically those 10% tariff countries? And how you think about, again, moving production out of China a lot of these countries seem like Safe Haven. And I don't know, how do you even make decisions in this current environment?
Christian Cocks
President
Well, I think that goes back to first principle, just answering your last question, which is don't overreact. Our assumption is that we will get to a a reasonable and logical trade policy ultimately once all the negotiations are done. We're not making any kind of hopeful assumptions that, that happens soon. Our guidance is based off of 145% and 10% reciprocal everywhere else and we're assuming that, that holds for the balance of the year.
If the reciprocal tariffs increased and China did not change, that would be a headwind, obviously, and we would have to take that into account. In terms of how we're thinking about the the rest of world in terms of [indiscernible] not just as a supply a source of supply, we see it as an opportunity. Our business is under indexed a bit inside of Europe. We see a lot of retailer excitement for some of the new product lines we have. The new Peppa Pig products that we have, all the great Marvel stuff that we have coming out.
Magic certainly is looking like it's going to be a winner in markets like Europe and Japan. So we see some potential for upside there, especially as we kind of prioritize where our where our SKUs are going and marketing dollars are going in terms of market upside. APAC likewise, we see some opportunities there.
And then the other thing that we're doing a lot of is starting to look at ODMs in Vietnam, India and even China, in terms of more value SKUs and getting more aggressive about real low price points and driving some breakthrough pricing opportunities for markets like LatAm and Southeast Asia via our everyone plays initiative as part of Play-to-Win so I'd say $145 million and [ TAM ] is our base outlook.
If that changes to the negative, it certainly is a headwind. What we don't necessarily have factored into our guide though is, hey, is there any market upside in terms of kind of shifting SKUs and shifting our marketing priorities. And so we'll play that out over the next couple of months.
Unknown Executive
Yes. With our team, we're really trying to avoid the analysis paralysis and the churn that, that can cause on decision-making. So we're staying very focused on what is known. And right now, what is known as the $145 million andmillion and the $all of the moves that we're making, both within our supply chain as well as with our customer base, we would categorize as no regret moves. Like it's good for us to have a more diversified footprint. So we'll just keep moving on that path.
Operator
Our next question is from Arpine Kocharyan with UBS.
Arpine Kocharyan
UBS Investment Bank, Research Division
You already provided -- sorry to go back to the tariff sensitivity slide, but could you maybe clarify is it fair to assume that those mitigating efforts will include bringing China exposure for consumer products below -- substantially below the 50% mark. I think you had given 40% exposure for China for 2026 before. I guess do you have a sense of where that could be for next year as of today, to the extent you can predict that.
And then in terms of other mitigating factors, whether it's cost saves to find ways to make things cheaper or taking pricing, is it possible for you to detail sort of assumptions there, let's say, making things cheaper could offset x percent of impact and then pricing will offset the the rest to extent it's possible to quantify. I know it's very difficult at this point. You're probably looking at thousand factors.
Gina Goetter
Chief Financial Officer
Thousand factors, that's probably right. Good questions. I'll start by saying, first, we are a global company. China is going to continue to remain an important manufacturing hub for us. And while our U.S. Toy and game business is roughly 55% of our revenue, 45% of it is okay with getting goods from China.
So China is always going to be a manufacturing hub for us. As we think about our moves from the 50 , to your point, we said back in February, we're on a path to move to under 40 by 2026. We are speeding that up. So we are accelerating our efforts there. It will -- we're targeting to be below that 40% by 2026. We are still kind of nailing down plans and and final product lines what all this is going to mean with with our -- the supplier base, et cetera.
So I'm not going to give you an exact percentage now. But I think that the path we were on to get to 40 by 2026 is going to be faster than that. As you think about then the mitigating levers that we have, again, I'm not going to give you exact dollars because they're all in the way that you laid it out, they're all kind of muddled together. But there's really -- if you go from that gross impact I'll just anchor to the high end of the range of $300 million kind of gross exposure down to the $180 million, what we're seeing is the net impact.
There's really 3 big things to focus on. And we've talked a lot about the supply chain. That's the first big thing and just how we're both shifting products around our existing manufacturing base, how we're managing inventory levels, how we're then kind of accelerating diversification that provides a big mitigating lever for us. The second piece is and how we're managing our product in the broader portfolio. So we have done a significant amount of SKU reduction leading up -- our SKU kind of rationalization as we led into this year.
We're continuing to evaluate what makes sense in this current environment for the U.S. market. So some of our higher-priced items or products that we just don't think are going to be tenable with -- from a profitability standpoint with 145% tariff on we're taking different choices on. So that's kind of the next lever is that we're really focused on product -- all of our DTV efforts and how that influences product cost, we're accelerating there.
And then the 3rd piece [indiscernible] commercial how we're thinking about pricing and reading the pricing actions, how we're managing our allowances with the retailers. Now all -- and when we talk about allowances, those are all the dollars that are sitting gross to net, how we put those either to better use or drop them altogether. So taken together, the supply chain, how we're thinking about product, how we're thinking about commercial and customer pricing. That's what gets us to kind of that $120 million difference between gross to net.
Arpine Kocharyan
UBS Investment Bank, Research Division
That's very, very helpful, Gina. And then one quick follow-up. Have you done any price elasticity of demand work to basically say x percent of growth in pricing is X percent impact on demand. I know it's difficult, right, especially in this environment. But anything you could share with investors to sort of help them think through pricing as a mitigating factor?
Christian Cocks
President
Well, we have. There's not a lot that I can share publicly since most of it's proprietary, definitely think $9.99 and $19.99 are important. We definitely think innovation and having a toy that has a must-have factor to it, something that the kid asks for and is based off of a passion-based purchase is also super important. And then last but not least, having great brands backed by fantastic fan bases and big entertainment moments is also super important.
And so when you look at like what we just announced with Disney, there's no bigger brands in the toy aisle than Marvel and Star Wars. We're thrilled to be extending our multi-decade partnership with them. We've been working with the Disney Disney -- Walt Company since the 1950s I think Snow White was in Cinderella. We're one of our first collaborations together. And I love their road map, what they have coming up in 2026 and what they just announced at their Star Wars event in Japan a week or so ago for 2027, I think bodes pretty favorably for what the future is for that.
And that's just one partnership in a series of partnerships that you're going to be hearing from us over the next several months and quarters that we're going to bring the best brands to our aisles that have the highest pricing power and the surest demand. And I think that's going to position us favorably over the long term.
Operator
Our next question is from Eric Handler with Roth Capital.
Eric Handler
ROTH Capital Partners, LLC, Research Division
You had pretty significant outperformance from MAGIC in the quarter, at least relative to my model. I wonder if you could sort of rank like where all that upside came from?
Christian Cocks
President
So I think it's a couple of things. We did have a bit of an extra set or half an extra set in terms of a remastered set. Our backlist performed very, very well. And then early ordering for [indiscernible] Dragon Storm has been very strong.
So probably the biggest thing was like the backlist over performance. And then Secret Layer has actually been doing pretty well. I mean the whole magic business is just just -- it's difficult to identify one thing. Really, I think what we're seeing on Magic is an expansion of the player the player base and when you expand base, it's just a great opportunity to engage them with more products and kind of create a network effect amongst the players and the collecting community. And we see that only strengthening as the year goes.
Eric Handler
ROTH Capital Partners, LLC, Research Division
And then one question on sort of manufacturing, like how easy is it to just pick up and leave a China manufacturing plant. How much lead time do you need to sort of switch over to another country? And can you do that before peak manufacturing times for the holidays for this year? Or is this more of a 2026 event?
Gina Goetter
Chief Financial Officer
Yes. Good question. Yes, I would say it's more of a 2026 event. I mean, obviously, the moves and the work is happening now. And it depends on capabilities. There are some countries that have the capabilities and the infrastructure in place. So it's just a matter of kind of the development and quality engineering work that needs to to happen shift.
In others, there is brand-new build of capability. So it kind of runs the spectrum in terms of the length of time. But if you kind of anchor back to what we said in February, it was going to take us a couple of years to move from that 50% down to under 40% and now we're saying, Oh, gosh, we're going to get there a lot sooner. So we're speeding up the time to get that diversification.
Christian Cocks
President
Yes. And it depends on the category, Eric. So like for PLAY-DOH, it's sending the boat to send the boat to the U.S. don't send the boat to Italy from Turkey and then send the boat from China to Europe. For NERF, where we have a very large India-based footprint, we are able to like change production but not necessarily where the SKUs are produced.
So we are changing what the SKU mix looks like inside of the aisle for the U.S. so that we can favor India-based SKUs, which maybe are older SKUs but are tried and true. But the benefit there is most of our competition, the white label competition and some of our other named competitors they're solely China-based so we actually could come to market with a pricing advantage versus them.
So it's category by category. I think where you're going to find China-based manufacturing the stickiest is really anything with electronics, anything with super high end Deco -- and then surprisingly, anything made out of phone except except for [indiscernible] But like foam role play, that tends to be a very specialized set of capabilities of Chinese manufacturing.
Operator
Our next question is from Alex Perry with Bank of America.
Alexander Perry
BofA Securities, Research Division
Congrats on a strong quarter. it, I just wanted to bridge some of your comments on the segment guide. So the outlook for CP unchanged, but now factoring in bigger levels of industry declines. I think you were at sort of flat to down 4% last time in the CP top line guide. You raised the Wizards top line guide pretty significantly, op margins come up, but reiterated sort of consolidated full company guide.
I guess is the is the puts and takes like a lower CPE implied op margin offset by the higher Wizards profit contribution like I just wanted to make sure we're sort of clear on the segment puts and takes.
Gina Goetter
Chief Financial Officer
Yes. Yes. Good question. I mean, I think that we spelled out Wizard, so that should be pretty clear of we're rising both. We're rising both -- raising both the revenue outlook and the operating margin outlook. In terms of CP, we're leaving it unchanged, just given the wide range in potential outcome here. So when you think of the net impact of $60 million to $180 million, if it's on that higher end of the range of $180 million you'll see a higher revenue loss, and you'll see those operating margins to your point, they're going to come down in the mid-single-digit range, just as -- we just can't absorb the entirety of the cost impact in the margin structure.
But if you go to the other end of the range, if we net out there, the trade policy kind of starts to calm down a bit if we don't see as much negative reaction from consumers or our customer order pattern mine study. If we end on that lower end of of the range, we stay then within spitting distance our original guide. So that's why right now, we just don't have enough clarity to narrow that down any further.
Hopefully, by the time we get to July, we're able to provide a bit more precision -- it's a pretty wide guide. But I think how you said it in terms of mid-single digits on CP and then you've got the Wizards both the Wizards upside as as well trying to accelerate all of these cost savings in the pipeline, that's what's helping to absorb it.
Alexander Perry
BofA Securities, Research Division
Really helpful. And then just my follow-up question, I wanted to circle back on on price? And what parts of the portfolio do you have the most ability to raise price? Would you ever consider price increases on parts of the portfolio that seem like theylike they have significant momentum right Magic or will it all be sort of concentrated in the to portfolio where you're seeing the most tariff exposure?
Christian Cocks
President
I think we're going to pick and choose. So pricing is ultimately going to be a discussion with our retail partners and ultimately, what price ends up up on shelf is to them. We're going to work hard to try to figure out how to hit those magic price points for the items that we think are most exciting and/or minimize any price increases associated with hot items that we think have a lot of good innovation.
So we've got a lot of cool products coming out this fall. We're refreshing the entire Peppa Pig line with the new baby on the way. We think PLAY-DOH Barbie is the most exciting new innovation to hit the arts and crafts category potentially ever. We think that's a huge collaboration and happy to be partnering with Mattel on it. Likewise, we have a lot of opportunities across board games and games. Magic is really on fire.
I think our default is to not pass on price wherever possible and instead to drive share and drive shelf space opportunities. That said, we are going to have to raise prices inside of 145% tariff regime with China. We're just trying to do it as selectively as possible and minimize the burden to the fans and families that we serve.
Alexander Perry
BofA Securities, Research Division
Perfect. That's incredibly helpful. Best luck going forward.
Gina Goetter
Chief Financial Officer
Thanks, Alex. Have a good day
Operator
Our next question is from Stephen Lasik with Goldman Sachs.
Stephen Laszczyk
Goldman Sachs Group, Inc., Research Division
Curious if you could update us a little bit more on the conversations maybe you're having at this point with retailers going into holiday. I imagine most retailers are trying to stay as flexible as they can for as long as they possibly can ahead of any potential reprieve on the tariff side. Could you just remind us maybe the the timing of how that plays out throughout the year? And maybe when the last possible moment that retailers would need to make a decision around holiday orders as we head into late summer, and I have a follow-up.
Gina Goetter
Chief Financial Officer
Yes. Yes, the very fluid is how I would describe discussions with our retailers. And to your point, right now in this moment where we're sitting in April, the holidays are a long ways away. So when you think about order patterns, what we are planning for, and I think Chris said it in Q&A here already this morning, planning for Q2 to have a pretty material shift in both kind of DI versus DOM as the retailers themselves are managing their inventories so some of that order pattern that anticipated order pattern that we've seen in Q2 does look different.
As we think about the back half of the year, when we kind of model out our revenue, there's not a material change in terms of the back half of the year really represents about still, call it, 60%, 65% of our revenue base. We expect our inventory to then kind of be more moving out from us to our retailers to be more back half loaded into Q3 and Q4. We don't see any material change in how retailers are thinking about the holidays. But to your point, they are making decisions right now.
Do I take it here in May and June? Or do I wait until we're closer to the holiday resets which are going to happen in, call it, September, October. So that's how we've contemplated our phasing. That's what is all embedded in our guide in the range of outcomes but if you think about what CP is going to look like in Q2, it's going to be a down quarter for us just given the change in the order patterns there. And then we kind of build back as we move through Q3, Q4.
Stephen Laszczyk
Goldman Sachs Group, Inc., Research Division
That's really helpful. And then maybe one on MONOPOLY GO. It looks like revenue has accelerated here in the first quarter. Curious if you could just speak a little bit more to the momentum you're seeing there, what's been working so well. to keep that IP going? And then any updates to your outlook in terms of the decay you're factoring into the guidance?
Christian Cocks
President
Well, I think first and foremost, Scope [indiscernible] made a fantastic game based on a fantastic brand. So it's very sticky. They're having excellent player engagement. They're doing good events with major partners. They just announced a a new one with Star Wars, which I think kicks off in month or so. So they've just been doing a really good job.
And I think they're getting to a more mature place in terms of how much they have to spend in terms of driving new player engagement, new player adoption, which is what which was a favorable aspect of the quarter for us. I think our previous guidance of about $10 million a month in terms of what we'll make is fair for the balance of the year and what we're currently modeling in our outlook.
Operator
Our next question is from Jamie Katz with Morningstar.
Jaime Katz
Morningstar Inc., Research Division
I just want to ask a quick question on POS, which was in the back of of the document the slide deck today. And I guess I'm trying to triangulate the strong revenue performance with sort of weaker market share performance. And I'm wondering if maybe that's a function of just decreasing inventories or working down inventories at retail? Or is there something else maybe that I'm missing?
Christian Cocks
President
We entered the year with pretty lean inventories with our retail partners. And so there is an opportunity there would be kind of what I would say on that.
Gina Goetter
Chief Financial Officer
Yes. Our CP performance in the first quarter was -- the toy part of it was pretty on our planned expectation. As Chris said, we didn't have anything crazy in terms of having a clear inventory and promotional and promotions like that because we came into the year pretty healthy. Licensing was what drove the upside on revenue in the quarter.
Jaime Katz
Morningstar Inc., Research Division
Okay. And then can you talk a little bit about what you guys are seeing at value price points, I think, from other consumer discretionary firms, we're just hearing incremental weakness across that consumer base.
Christian Cocks
President
I don't think we have any real thunderous insights to share with you right now in terms of what the consumer behavior is generally speaking, toys as a category did pretty well in first quarter and Easter kind of went off as expected. So I think people are continuing to buy toys.
Personally, I don't think we're seeing any indication that people are pulling forward like holiday buys or summer buys toys tend to be an occasion-based purchase or a -- just a passion and consumers are behaving normally.
Operator
Our next question is from Kylie Cohu with Jefferies.
Kylie Cohu
Jefferies LLC, Research Division
I'll have the color around CP exposure is super per helpful. But I was wondering to dig into the Wizards exposure a little more. I know it's small. But I do believe you do source some from Japan, but I was curious if there were any other countries to call out or details to add for rest of the world for that segment specifically?
Gina Goetter
Chief Financial Officer
Yes. The exposure for Wizard and Flash Magic is pretty minimal. I mean -- and it's embedded in the Wizards bar in bar in the chart embedded in the Wizards guide. On a kind of 12-month basis, call it $5 million to $10-ish million of exposure, to your point, we do have manufacturer Japan. We do also manufacture over in Europe a bit. The bulk of the manufacturing is coming from the U.S.
Christian Cocks
President
Yes. The only thing in wizards that we import from China is like D&D box sets. So that's actually where -- that's actually a bigger input on the tariff duties I mentioned for for Withers like the Japanese duties MAGIC.
Kylie Cohu
Jefferies LLC, Research Division
Okay. No, that is super helpful. And then just kind of following back up on the POS -- and I think you mentioned that licensing is better than expected. But I was just curious like what were those bright spots specifically that would just be helpful. And kind of what did you see anything around Easter. Obviously, there's a timing shift this year. anything that performs particularly well?
Christian Cocks
President
Well, on licensing, certainly MY LITTLE PONY continued to perform well and had a favorable year-over-year comp MONOPOLY GO is doing quite well. And then in terms of POS for our brands, we had TRANSFORMERS was up dual master -- I'm sorry, Beyblade was up. We had a good quarter in terms of Marvel. Those are probably like the big bright spots for us on POS.
Operator
Thank you. There are no further questions at this time. This does conclude today's conference. We thank you for your your participation. You may now disconnect lines.
The most important nugget of information was this information (Please read around the obviously inaccurate transcript glitches):
So it seems like, while a lot of tabletop companies are being hammered by China related uncertainties, Wizards doesn't seem to produce all that much in China, but are printing their cards in Europea, Japan and US (Cartamundi) so their exposure is relatively low.
Also it seems like MAGIC is just continuously growing faster than the rest of the Hasbro Gaming Division more every quarter.
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