Good morning, and welcome to the Hasbro Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. 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 Incoming Chief Executive Officer; Rich Stoddart, Hasbro's Interim Chief Executive Officer; and Deb Thomas, Hasbro's Chief Financial Officer. Today, we will begin with Chris, Rich and Deb providing commentary on the Company's performance then we will take your questions. Eric Nyman, Hasbro's Incoming President and Chief Operating Officer, will be joining us for Q&A. 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?

Thanks, Debbie, and welcome, everyone, joining today. I'm thrilled to be starting as Hasbro's CEO later this month and overwhelmed by the outpouring of well wishes from employees, partners and stakeholders since the announcement. The positive response is a testament to this amazing company and the wonderful people, brands and fan communities around the world that make it so special. Hasbro is unique in our ability to create cherished childhood memories that translate into lifelong favorites. Our brands stand toys that inspire wonder to collectibles that showcase fashion, board games that bring families together to gaming systems with thriving global fandoms and animation that delights children to feature films and video games that engage audiences of all ages. As CEO, I'll be working with our team focused on three long-term priorities. First and foremost is driving growth with the Brand Blueprint. At the heart of Hasbro is the Brand Blueprint. It enables us to expand the value of our brands and capabilities as we engage our fans across all aspects of play and entertainment from consumer products to games to streaming TV shows, executing through our owned and operated assets and the best partners in the industry. We've seen significant success with this strategy with brands as varied as PEPPA PIG; TRANSFORMERS; and most recently, MY LITTLE PONY. And I'm excited as we extended benefits to more brands from PLAY-DOH to MAGIC: THE GATHERING, to our upcoming blockbuster movie and AAA video games with DUNGEONS & DRAGONS. Our next focus area will be multigenerational fan engagement. Play isn't just our kids anymore. It's a lifeline pursuit. Gen Z's favorite brands are the ones they play with that surround them with engaging experiences, and millennials and Gen X aren't far off. We are creating omnimedia play and entertainment that spans age…

Thank you, Chris. The global Hasbro team finished the year strong, delivering full year results above our guidance, including 17% revenue growth, a 40 basis point improvement in adjusted operating profit margin, 23% growth to $1.3 billion in adjusted EBITDA and over $800 million in operating cash flow. Deb and I are very proud of the Hasbro team and all they accomplished in the past several months. Throughout the year, and especially in the fourth quarter, we successfully navigated supply chain challenges across the business, delivering another record year for Wizards of the Coast, growing consumer products revenue for the year and fourth quarter and achieving robust content deliveries above 2019 levels in our Entertainment business. The Brand Blueprint strategy is driving profitable growth across our diversified portfolio and Hasbro's unique set of strategic assets provide the foundation for maximizing the value of both our existing franchises and new IP. We have and are investing significant capital around the Blueprint, expanding and growing our powerful gaming portfolio, including in MAGIC: THE GATHERING and DUNGEONS & DRAGONS, building deeper and more valuable brands, telling compelling stories to global audiences and in developing our talented teams. Our commitment to disciplined strategic investments over the long-term has built a differentiated business with diversified capabilities to drive profitable growth and enhance shareholder value. This is evident in our performance last year. First, gaming. With a portfolio of $2.1 billion that grew 19%, Hasbro's gaming portfolio is among the biggest, most profitable and fastest-growing combinations of gaming brands across face-to-face, tabletop and digital platforms in the world. It's led by MAGIC: THE GATHERING, and 2021 was MAGIC's best year ever. Over the past five years, we've invested close to $1 billion to drive 150% growth in high-margin revenue and position us for growth in the…

Good morning, everyone. As Rich said, we're incredibly proud of the performance by the Hasbro team over the past several months to turn in an outstanding year. This includes full year double-digit growth in revenue, operating profit, earnings and adjusted EBITDA. We grew revenue across segments, brand portfolio and geographies. Wizards in digital gaming had its best year ever, doubling the size of the Wizards business two years earlier than anticipated. We furthered the integration of eOne, launching new increasingly Hasbro brand-led content campaigns as well as Hasbro's line for PEPPA PIG and PJ MASKS. We remain on track to achieve the $130 million run rate of cost and in-sourcing synergies by the end of this year. We strengthened our balance sheet, paying down over $1 billion in debt, ending the year with over $1 billion in cash. And after reducing our debt-to-adjusted EBITDA last year by 1.7x to 3.1x, we are on track to hit our target of 2x to 2.5x by year-end 2023. And we invested across Hasbro to profitably grow for the long term while returning cash to shareholders, including a 3% increase in the quarterly dividend announced today and effective with our next dividend payment in May. Our 2021 results and current year outlook support our view to growth and value creation over the coming years. For the year, revenue grew 17% year-over-year and 8% versus pro forma 2019. MAGIC: THE GATHERING, NERF, PEPPA PIG, MY LITTLE PONY, TRANSFORMERS and Hasbro products for the Marvel portfolio led the year-over-year growth, along with the return of Entertainment production and deliveries, notably in TV, streaming and animation. The Wizards of the Coast in digital gaming segment had a phenomenal year, growing revenue, 42%; operating profit, 30%; ending the year with an operating profit margin of 42.5%, and adjusted…

Thank you. At this time, we'll now be conducting a question-and-answer session. [Operator Instructions] Thank you. And our first question comes from the line of Steph Wissink with Jefferies. Please proceed with your question.

Thank you. Good morning, everyone. Chris, I have a question for you, and then, Deb, one clarification. Chris, my question is really regarding your number three initiative from your prepared remarks, the gaming and DTC strategy. I'm hoping you can connect those to some of the growth targets that Deb just laid out. I think she mentioned for Wizards and gaming, the expectation was high single to low double-digit growth. So maybe help us think through the DTC component of that? And just remind us how much of the business is DTC today, if any at all?

Well, so on games, when we look at 2023 and beyond, we look at continued growth in our tabletop business, consistent with our historical norms, and we look at a robust slate of new digital games that will be coming to market, both as we've talked in the past, Steph, digital tabletop, which is kind of an extension of our core games as well as extensions into more traditional video game categories like role-playing games, action adventure and strategy. And so, we'll be sharing more details about that over the next several quarters, and we expect some significant growth from those initiatives as we've been putting in significant investment in them. On direct-to-consumer, we have a variety of direct-to-consumer initiatives across the Company. Wizards of the Coast and digital games drive several of those. We would consider Arena to be an example of a direct-to-consumer business because we run that service and primarily adjudicate payments through our own proprietary means. We also have our secret layer business, which has grown significantly over the last several years for MAGIC. And then I'm going to turn, I think, the second half of the question over to Eric Nyman, who can talk a little bit more about what we've been doing on the Consumer Product side with Hasbro Pulse, which has also had tremendous growth. Eric?

Thanks, Chris. So Steph, I think you know our Hasbro Pulse business, we don't disclose that amount for the pulse, but we have seen great growth. We did double it again in 2021. We have some incredible new announcements coming in 2022, and we look forward to sharing those with you in the upcoming months.

Great. Very helpful. And then, Deb, I wanted to just go back to your comments on comparability in the quarters in 2022, recognizing you have some onetime items that won't repeat. But also, can you help us just think through maybe in semesters, if you'd like, versus quarters, how to think about the first half versus the second half? I know June was an unusual comparison with a few things in that quarter specifically. So just help us think through maybe the sequencing of this year for our models. Thank you.

Sure. So absolutely. Let me just start with the Entertainment business. As you know, Entertainment is so dependent on when deliveries take place, right? So I would think a little bit about that similar to the cadence of 2021 from an Entertainment standpoint. As you mentioned, June was a big quarter. The second quarter was a very big quarter for us in Wizards of the Coast in digital gaming and also, we have some exciting initiatives in consumer products as well. So as I think about the year, I think the most difficult comps for us this year from a cost standpoint are really in the first quarter. We've got high capitalized freight and input costs. And as we mentioned, our price increases don't take effect to cover some of that until the second quarter. So if you think about cost pressure standpoint, it's really the first quarter. And from a comp standpoint, given the success of MAGIC: THE GATHERING and the releases that we have planned this year, really the third quarter is going to be a bit tougher as well. We had some digital that launched and went into that third quarter and an extra release. We have the same number of table top releases this year. We just don’t have the extra digital release that we had in 2021. So, as I think about comps, the first quarter and the third quarter are a little bit tougher comps than the rest of the year.

Very helpful. Thank you. Congrats on a good quarter.

Thanks.

Our next question comes from the line of Eric Handler with MKM Partners. Please proceed with your question.

Good morning, and thanks for the question. Deb, I wonder if you could dig in maybe a little bit on the entertainment side of the business again. As we think about where the growth is coming from in the business in 2022, can you maybe give us a little breakdown of live-action TV versus movies versus animated programming? Where are going to be sort of like the puts and takes for those segments? And how much of the business is coming from frontline versus catalog?

Sure, Eric. As we kind of look out over the business, we had a great year of deliveries, and we saw theatrical start to come back in 2021, still wasn't anywhere near the levels of pre-pandemic, but it's starting to come back. So as we think about deliveries moving into 2022, we do have a few movies that are scheduled to be delivered. We have a couple in the early part of the year from eOne and one in the later part of the year. It's still in production right now. And we think as we move into 2023, obviously, that will be a bigger year as we did production on DUNGEONS & DRAGONS with our partners at Paramount and Transformers: rise of the Beast. So those will be out in 2023 as long as movies from our -- as well as moves from our partner at Disney and the Marvel starting into the Galaxy and Indiana Jones and a new Star Wars movie So very excited about moving into 2023, and then our partners at Disney later in 2022 with Dr. Strange; Thor; Spider-Man; and of course, we're all excited for a Black Panther: Wakanda Forever coming in the fall. So as we think about our Entertainment business, we have that, but we continue to distribute live-action content. We have many unscripted and scripted television or streaming coming out throughout the year. So much of that is dependent on deliveries, which is why I said earlier, if we kind of think about the delivery and the cadence being similar to 2021, just from a delivery standpoint, that will continue to come out as we go through. And from an animated standpoint, we have MAGIC: THE GATHERING coming in the fall. We're very excited about that as well. And we have more deliveries from -- for PEPPA and PJ. But just as a reminder, in the third quarter of last year, we had the MY LITTLE PONY movie. So while we have a robust content road map coming from MY LITTLE PONY go forward, that delivery in the third quarter is probably will have a bit of a blip on the animation side, which is, again, why I think the third quarter is probably the one that has probably the toughest comp as I think about the year ahead of us. From a library standpoint, while we did have some sales of library, in particular, we've done -- just done a deal in the Nordic countries to distribute some library content. The vast majority was from new series delivery of our revenue as we think about the past year.

Okay. Thank you. And just as a follow-up, as we think about the Hasbro Gaming segment, and that's stripping out MAGIC and whatever else is, and MONOPOLY, which go into franchise brands, you've had excellent growth over the last two years. Is that a segment that probably we'll see challenging comparisons for 2022?

Yes. So I think -- thanks for the question, Eric. So look, the gaming portfolio is extraordinarily strong and has been a real leader. As we pointed out, we would point you to the $2.1 billion at 19% growth. And we've got some powerful brands in there. Clearly, gaming has had some robust demand as we were in a COVID environment. And so very tough comps, and yet we're still growing that business, and we see upside for the business going forward.

Our next question comes from the line of Arpine Kocharyan with UBS. Please proceed with your question.

And Chris, congrats on the new role. We look forward to working with you. I was wondering if you could talk about current POS trends for the industry in Hasbro. And what is sort of general retail inventory situation? I know you alluded to perhaps better retail inventory versus on hand. But just a bit of more detail would be helpful. And then I have a quick follow-up on gaming.

Maybe Arpine, I will have Deb take the inventory question first.

Sure. So just from an inventory standpoint, as we mentioned, both our inventory, our owned inventory and retail inventory was up a bit at the end of the year. And that's really input and freight costs that are capitalized in that inventory. Now the good part is what's in transit is our new spring releases for MAGIC and for our Consumer Products business. So, it's an excellent quality and it is being slightly impacted though by those higher input costs as we think about inventory.

And then our opinion as it relates to POS, so we did include a summary of POS in the presentation. So please take a look at that. But North America was up low single digits for Q4 and full year. And double-digit growth, maybe back to Eric's point on games, double-digit growth for games in Q4. International declined. And clearly, low in-stock levels, was a driver and a headwind for POS the portfolio. I may ask Eric to just anything you want to add on POS?

Yes, I'll just include maybe some highlights. Thanks, Rich. Arpine, if you think about some of the good stories we had in 2021, some highlights include things like MY LITTLE PONY, which grew more than 100% in Q4 following the movie release that Deb and Rich both mentioned, grew double digits for the full year. Our TRANSFORMERS' POS was up in Q4, which contributed to double-digit POS growth for the year. Deb mentioned Marvel and how that strong partnership. Marvel POS, led by Spider-Man, was up high teens for the year. And we had things like Ghostbusters and GI Joe, both which were propelled by theatrical launches, which were up more than 100% for the year. In addition, we had growth in brands like PLAY-DOH and For Real Friends and Play School, which increased. And we also talked about the POS growth for PEPPA PIG and PJ MASKS, which we started shipping in the second half of the year and really started seeing POS in the fourth quarter.

Great. Great. I was hoping you could add some color on current POS trends. But just quickly, my gaming question. What is implied for the gaming business operating margin for 2022? Because clearly, for the full year, for 2021, that business came in substantially above the 39% guidance you had initially given. Where do you think those margins could get to for 2022?

Sure. So absolutely, Arpine, as we launch games, we did see the higher depreciation we expected. As we talked about, we continue investing for that long-term growth. So our higher admin cost reflects hiring people to do that. And we did have that. That being said, our gaming portfolio -- overall, our gaming -- Hasbro gaming has high teens, low-20s margins. And when you look at our total gaming portfolio is in the low-30s operating profit margin. So as we grow that category -- and that's why it's important that we said today, despite the fact that we're growing, our gaming portfolio overall is continued to expect to have operating profit margins in the low 30s as we go forward. And our Wizards of the Coast and digital gaming segment is expected to not only grow revenue and, as Chris mentioned earlier, at a greater pace in '23 and beyond as some of the games that we've been investing in come to market, but we expect that segment to maintain operating profit margins over 40%.

Next question is from the line of Drew Crum with Stifel. Please proceed with your question.

Deb, can you remind us what the plans are for debt reduction in '22 and '23? Will you be paying down debt this year? Or is the -- your aspiration to get to the 2x to 2.5x leverage multiple in '23 just a function of improved adjusted EBITDA? And then separately, you mentioned the non-cash charge taken related to the Discovery Family Channel during the quarter. Given the changes, across the cable industry that, were referenced, can you comment on your commitment to this business? And does it make sense to maintain the 40% stake going forward?

Thanks Drew. Well, first, the debt-to-EBITDA question, yes, we intend to pay down debt this year. We expect to hit our targets of 2x to 2.5x through a combination of EBITDA growth as well as debt repayment. That being said, we maintain our capital allocation strategy. First and foremost, we invest in the business. We've talked about how some of those investments, particularly in our gaming portfolio, have delivered growth of 150% and above in revenue. We continue to plan to make those long-term investments in the business around the Blueprint to drive that profitable revenue growth going forward. That being said, right now, those targets are the right targets for us. We think, given our current projections, we'll hit them in 2023. And that's -- so that's how we look at it. But it is a combination of debt paydown -- additional debt paydowns as well as EBITDA growth. With respect to the investment in Discovery Family Channel, listen, it was a great investment for us. We made it over 10 years ago. It allowed get our programming on the air. It really drove the beginning of the Brand Blueprint strategy. And you think about MY LITTLE PONY coming back in again, well, we've reinvented it now. It had a great run for a long time. It's been a terrific investment for us. It's driven over $1 billion in revenue for the Company. It's returned a significant amount. Listen, there's just changes happening in the cable industry. I think as we look around us, we see it too, more people moving to streaming, more people moving on to different things. That being said, discovery runs a great network, and all of their network is terrific. And it's been a great investment for Hasbro as we continue evaluating what we're going to do with it. We'll continue looking at what's happening. But it's been a fantastic investment for us over time. It's had a really great return. And just because of the way the accounting function works, we had a non-cash non-op charge in the quarter.

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

I don't think there was any information on how you guys are thinking about capital spending this year in the deck. But can you give us an update on that? And on what you see as a working capital demand changes that we might see this year?

Sure, absolutely. Jamie, from a CapEx standpoint, just straight CapEx, our expectation is it would be about $150 million to $180 million in 2022. And that changed from a year ago. If you recall, it's usually -- the majority is spent on tooling, but our increase is really due to digital game development as we sit and look forward, and that's driven us a bit higher over time. But that's really where the increase is coming from in our CapEx estimates for 2022. From a programming standpoint, I think we mentioned we expect $725 million to $825 million in content spend, up a tick from 2021, but that's a multiyear content spend. So as we look out past '22, we have a lot of new animated programming coming including new brands. So when you think about that, it's a multiyear spend that we're seeing in this year. So hopefully, that helps.

Okay. It did. And then I think originally, the 2023 outlook was for above 15.7% for operating margin, and that's been lifted a little bit. Is that primarily due to just the mix of the portfolio and where the returns are coming from? Or is there something else we should be thinking about?

No, absolutely. And that's a great question. Yes, we have been saying that we saw nothing holding us back from getting to over 16% operating profit margins. And we see that in 2023 and beyond. When we look at the mix of what we expect to have in our product line, we expect a greater mix of franchise brands, a mix of I talked a bit about the movies coming out in 2023, like Indiana Jones and TRANSFORMERS and Guardians and new Star Wars and DUNGEONS & DRAGONS. When we think about that and the growth we expect in our gaming portfolio, we expect to see operating profit margins based on that mix of greater than 16%.

Next question comes from the line of Gerrick Johnson with BMO Capital Markets. Please proceed with your question.

I was hoping you could talk a little bit more about Wizards of the Coast in the quarter. You gave us some good detail on the year, but discuss the operating margin decline to 30% or so, and if gaming -- if digital gaming grew in the quarter year-over-year?

Sure. So as we think about margins, operating margins in the quarter, we did have depreciation. Not every quarter is the same, right? So we had some digital depreciation in the quarter. And that's really kind of what you're seeing from a quarter-on-quarter. I think said, it's still a very healthy and high operating profit margin within the quarter. And Chris, do you want to talk about...

Yes. So I think within the quarter, it was just the quirks of when we depreciate when we capitalize and then also some advertising expenses related to an incremental release that we had Crimson Vale during the quarter as well as continuous support of Arena and scaling Arena mobile. The growth of the business has been very strong, exceeding our expectations. We continue to have a very positive outlook on it, both on the table top side and long term on the digital side for 2022 and beyond.

Okay. Was the depreciation quarter, was that related to Magic: Legends?

Magic: Legends was a license game done by Perfect World. So we weren't a part of that. We took royalties from that and a minimum guarantee but didn't invest anything in development or marketing.

The depreciation was really just related to our games. The only other thing I would point out is people don't think about that -- think about this very often, but our Wizards of the Coast business, and not so much the digital side, but the tabletop side was also impacted by the freight and input cost issues that we saw in the Consumer Products business. So that card business from a manufacturing standpoint, if we look at components, the highest growth of components of our overall inventory this year within paperboard and print, right? And we think about the printing of the cards and the freight in for the cards as well. So that was the other thing that impacted us in the quarter. And we do expect to have a bit of an impact in the first quarter as well.

Okay. Great. Can I ask about taxes real quick? Your tax rate seemed a little bit low in the quarter. I mean your op income hit my number, but your EPS blew the away. So what did I get wrong in taxes? And did you have a benefit in the quarter on taxes?

We had -- we did have some adjustments on discrete items for the quarter. I mean, typically, we do file our tax returns as most companies do in that October time frame. So to the extent we have discrete return to provision items, we tend to see those in the quarter. As we are going through the integration of we probably had higher impact from that in 2021 than we would expect going forward.

The next question is from the line of Fred Whiteman with Wolfe Research. Please proceed with your question.

I was hoping you could just give a quick overview on how you see the new management structure going forward. You guys did not have a COO after John's retirement and would love to sort of get the latest thinking on delegation of responsibilities and sort of where you see the relative strengths across the management team today.

Yes, sure. So I feel very fortunate in the management team that I'm both inheriting and that we're bringing on board. In terms of our business unit leaders, Darren Throop will continue to lead entertainment in I think we have a fantastic new hire with Cynthia Williams coming on board at Wizards of the Fields. And she will be augmented by Tim Fields. Cynthia has a great digital and direct experience from Amazon, where she helped to found the Fulfilled by Amazon business and then most recently, on the Xbox team working along on a lot of their cloud services. Tim was the CEO of Kabam, one of the most successful mobile game developers in North America and I think brings a lot of great production experience as we scale our digital investments. And then, of course, we have Eric, who, in addition to being COO, will continue to run our Consumer Products team. Eric has been doing a fantastic job driving that business, growing our relationships with partners and thinking about the future of where that goes. In his expanded remit, he'll be taking on more and more strategic opportunities and operational opportunities across the Company, including running all of our global sales and marketing. And then in addition to that, we have Deb who continues as, I think, one of the best CFOs in the business, helping to think about strategic planning, helping us think about finance and accounting and then, of course, our Investor Relations. We have Tarrant Sibley, who will continue as our Head of Legal Affairs. We have Kathrin Belliveau, who is our Chief Purpose Officer and will run a lot of our CSR and ESG initiatives. And then we have joining us from Dell, Naj Atkinson, who will be our new Chief People Officer, helping us drive and scale this organization and grow the talent that we have within it.

Super helpful. And Deb, just a clarification, I think you guys said you were on track for the $130 million of eOne synergies. I think previously, you were expecting $70 million of incremental savings in '22. Is that still a good assumption? Or did the timing of those benefits sort of shift?

No, Fred, that is a good assumption still. I mean we're and we're still on track for the in-sourcing. We had a little bit of a challenging supply chain like everything else with our in-sourcing for PEPPA and PJ. And we've continued to work with some of our really terrific license partners actually, our consumer product license partners, as we move forward and deal with some of the supply chain challenges. But we are on track for the $130 million in the additional amount in 2022.

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

I was just wondering if you could talk a little bit more about some of the puts and takes in the Wizards business over the next couple of years. Specifically, what are some of the key things creating tough comps for 2021? Is it some of the digital deliveries? I think there was a DUNGEONS & DRAGONS game. And then I think it's Dark Alliance. And are you guys on track to deliver a new D&D game over -- each year over the next couple of years?

Yes. Mike, I'll take this one. So on the tabletop side of the business, we predict more historical norm growth after an extraordinary 2021. A big part of -- a big function of that is last year, we had six of what we call premier releases, which are our large MAGIC set releases versus five historically. This year, we'll also have six, but you're comping those two. So it's more about base underlying growth in the business and the user base. On the digital side of the house, last year, we had Dark Alliance, which shipped at the end of Q2, beginning of Q1 -- sorry, beginning of Q3. And then so, we won't be comping that this year. And then we also had MAGIC: THE GATHERING online, which is our older -- or our original trading -- digital trading card game that we've converted to a license model as opposed to an owned and operating bottle, and that will be operated by our partners at Daybreak Studios. So, those two could create some headwinds that arena and continued growth in our digital RPG business, will continue to work against. Longer term, we expect to have a new release, at least one every year starting in 2023 through the foreseeable future. Our 2023 release will likely be in the back half of the year, and then we'll be sharing more details on what those future releases are likely in the second half of 2022.

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

I was hoping you just talk more about the puts and takes on the operating margin for the full year. You spoke to some gross margin pressure in 1Q before the pricing actions go into effect. But do you ultimately think you can recoup the freight pressure as we get kind of to the back half of the year, especially as you lap some of the unusual air freight expenses?

Yes, absolutely. As we said, we expect operating profit margin expansion in 2022, just not reaching our full goal of in excess of 16% by 2023. We do expect to continue challenges with freight costs and input costs for the better part of this year. We do have the pricing coming into play, but it still remains a challenging environment, we think, in 2022. So as we think about that, the first quarter is difficult, but just because the price increases come into play in the second quarter and beyond. And we're very excited about the new launches and all the innovation that we have coming out throughout the year, but in particular, around the holiday season.

Great. That's really helpful. And then just as a follow-up, could you maybe talk a little bit about what you've seen in POS trends do lap the stimulus payments in January? And maybe how does that inform your expectations as we lap the double stimulus payments coming up in March and April?

Sure, absolutely. As we mentioned in our prepared remarks earlier, the toy and game industry has had incredible growth the past couple of years, really above trend. And when you look at things like stimulus payments going away, inflation, right? I always like to say around the table, guys, look, how much milk costs today versus how much it costs a year ago, I think everyone is seeing inflation. That's why we expect the industry to be more muted this year, maybe even down. I mean we have a lot of innovation and a lot of new things coming with a lot of great entertainment coming this year, which we believe is going to drive a lot of our demand, and that's why we think our business can grow. But we do expect to see a bit more muting in the toy and game industry in 2022 just because of all these things that aren't hitting global inflation and stimulus payments, as you mentioned it, in other parts. That being said, we expect the entertainment industry to grow this year, as theater is coming back online and people are going back out and content demand continues to be at an all-time high as well as digital gaming and gaming industry overall, we expect to continue to grow. So that's the benefit of all of the parts of our business working together around our blueprint. And that's what we think gives us a distinct advantage in this type of market.

Our next question is from the line of Linda Bolton Weiser with D.A. Davidson. Please proceed with your question.

I was just thinking about the Consumer Products business more longer term. And I guess we don't have your segments going -- your profitability going back to 2016, but that's when your overall company margin kind of peaked at 16.4% operating margin. How does the consumer products margin kind of very roughly compare back then to what it is today? So I guess it's around 10% operating margin today. Was it much higher back then, moderately higher? Just trying to think of what the profitability potential of consumer products is longer term beyond where we are today.

Sure. Well, we expect our Consumer Products business operating profit margin to continue expanding. I think in 2022, we've talked a lot about the cost pressures that hit that business. And we've talked about in 2023 and beyond, we expect our operating profit margin as a company as a whole to expand above 16%. We expect a bit faster expansion in Consumer Products operating profit margin in 2023 and beyond. So while I can't go back to 2016, because our business had many facets to it at the time, and it's our business as a whole, we do expect that our business will continue to grow. As a company we'll be in excess of 16% operating profit margin similar to those levels in 2023, and our Consumer Products operating profit margin will expand over time.

Next question is from the line of Alok Patel with Berenberg. Please proceed with your question.

I wanted to ask about the Disney Princess license. I think I heard Deb said that at the peak, it was contributing about $250 million in revenue. Can you comment on, how much of the revenue contribution is coming from Star Wars and the Marvel portfolio?

So we did say that, over the term of the Disney Princess and Frozen license, it's averaged about $250 million per year of revenue. And the peak was in 2019 with the Frozen movie. So if you just think about that on a revenue standpoint, we continue to remain very excited about our partnership with the Disney Company and continuing with Marvel and Star Wars. And we're all very excited for Indiana Jones. We had a license for Indiana Jones many years ago. And I've had the opportunity to look at some of the products we're bringing out, and it's just fantastic. So we're very excited about our partnership continuing with the Disney Company. We have not specifically talked about profitability in those lines in total. But I will say, we've said in the past, our Partner Brand portfolio in total in the past has had mid-single-digit operating profit margins. But our expectation, as we move beyond 2023, is that would grow to high single, low double-digit operating profit margins in 2023 and beyond.

Okay. So just as a follow-up, would you say that the Disney Princess license compares favorably to Star Wars or the Marvel one? I just kind of want to get an understanding of how this changes things just how to compare -- for comparative purposes.

Each license is different. And depending on what goes into content creation within those brands, each license has a different margin profile as you look at it. So what I would say is in 2023 and beyond, we expect our Partner Brand operating profit margins to expand to high single, low double digits, more in line with some of the other parts of the portfolios of our business.

Thank you. We have reached the end of the question-and-answer session. I'll now turn the floor back 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. And management's prepared remarks will be posted on our website following this call. Thank you.

This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.