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Good morning. Welcome to the Hasbro Second Quarter 2026 Earnings Conference Call. At this time, all parties will be in listen only mode. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. 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 Fred Wightman, Vice President, Hasbro Investor Relations. Please go ahead.

Thank you. Good morning, everyone. Joining me today are Chris Cocks, Hasbro's Chief Executive Officer, and Gina Goetter, Hasbro's Chief Financial Officer and Chief Operating Officer. We'll begin today's call with Chris and Gina providing commentary on the company's performance before taking your questions. 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're 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'd now like to introduce Chris Cocks. Chris?

Thanks, Fred. Good morning, everyone. Hasbro delivered another strong quarter, capping off a remarkable first half of 2026. Despite headwinds from oil and trade policy, the business delivered 15% growth for the first half, with profits up appreciably. Wizards continues to grow at a strong clip. The toy business posted another quarter of growth, and our momentum is broad-based with Magic, D&D, Hasbro Gaming, Peppa Pig, Star Wars, and Marvel all showing solid year-over-year performance. Magic is off to a ripping start, up over 32% in Q2 and over 34% in the first half. On that strength, we're raising our full year Wizards outlook, which Gina will size in her section. Marvel Super Heroes set a record for day one and month one revenue and became the fastest set to reach $300 million in revenue with solid reorders and sell-through. The Hobbit is also tracking like a fan favorite.

The growth is broad-based. Expanded distribution, real player growth, and Universes Beyond continuing to pull new fans in through IP they already love. I'm not surprised by the level of interest and questions we get about Magic. While it's by far our biggest brand, in many ways, it's also the least understood. Let's define it. While Magic's roots are based in the thousands of local game stores around the world, Magic is not a niche hobby business. It is a mega franchise. Magic: The Gathering belongs in the same company as Pokémon, EA Sports, World of Warcraft, and Minecraft. Profitable, durable franchises built to compound for decades. What sets Magic apart is longevity. Magic has been compounding for more than 30 years. It's also a deep game, and that depth and complexity is precisely what our players love.

Magic fans play and collect for years because mastery never ends, and that retention is what powers a robust secondary market and a passionate community of tens of millions of fans who treat the game as a lifelong pursuit rather than a passing trend. The numbers bear it out. Since 2009, our tabletop and digital Magic businesses compounded revenue at over 17% a year and grew in 15 of the last 17 years. Those two years it didn't grow? Each were declines of less than 3%. Step back and look at Magic over any real horizon, and you see one of the most consistent compounding franchises in entertainment, a genuine peer to the biggest names in gaming. It is a leader in one of the biggest categories in toys, collectibles, and games. With Universes Beyond, it is bigger than just a game.

It is a platform with platform-level economics and potential. Turning to consumer products. Revenue grew 5% in the quarter, and our toy and game business delivered its third consecutive quarter of growth. We're continuing to see benefits from our focus on GEM Squared categories, those parts of the toy industry that are gamified, entertainment-driven, multi-purchase, and multi-generational, which continue to outperform the broader industry. We're continuing to expand the reach of our brands through product innovation and partnerships. We recently launched Blooms, our new aged-up product for Play-Doh. Response from consumers, creators, and retail partners has been strong, with the initial launch selling out at major retailers in less than 24 hours. Late last week, we announced a multi-year licensing agreement with Nintendo to develop products inspired by The Legend of Zelda franchise.

You'll begin to see that collaboration come to life in 2027, starting with product reveals at San Diego Comic-Con later this week. Our licensing team continues to extend Hasbro's brands through great partners and new categories. Tonies launched the first Hasbro Gaming for Toniebox 2, delivering the strongest pre-orders in Tonies history. Kayou brought My Little Pony trading cards to the U.S., and Monopoly Big Board Bucks became one of the top new premium slot titles in the industry from our partners at Aristocrat. Taken together, our second quarter results reinforce what makes Hasbro different. Magic continues to lead the category for product innovation and fan engagement. Licensing is expanding the reach of our brands across categories and channels. In toys and games, better execution and stronger innovation are driving growth. That's a balanced portfolio built for durable long-term value.

Before I turn things over to Gina, I want to spend a few minutes on digital. Over the last several quarters, we have reviewed our portfolio and updated our plans for Hasbro's digital future. That work included canceling several games scheduled for release in 2028 and beyond, and recording a $56 million non-cash write-down this quarter for related capitalized costs. The write-down reflects the standard we are applying to the portfolio. We are focusing our digital investment behind the franchises, platforms and partners, where we see the clearest upside and where Hasbro has the strongest right to win. Four priorities will guide our digital strategy: Focus, cost discipline, ownable platforms, and partnership. First, focus. Our digital investment will center on trading card games and role-playing games with brands that can become a significant digital franchise and expand across media over time. We already have strong proof points.

Magic: The Gathering Arena is one of the most successful digital TCGs of all time. Baldur's Gate 3 is one of the biggest and most awarded role-playing games of the last decade. Exodus and Warlock are our next two significant owned game offerings, both planned for 2027. Exodus extends our role-playing strength into science fiction. Warlock expands on one of the most popular classes in D&D. Both meet the bar we are setting for owned publishing: big audience potential, strong genre fit, franchise potential, and meaningful opportunities beyond the initial game. Second, cost discipline. 2026 should be our peak year for digital investment as Exodus and Warlock enter their finishing phases. As we move into the next generation of games, our model becomes more efficient. We are past the startup phase. We now have more mature tools, teams, and production processes.

We are shifting more development to lower cost regions with strong talent, with Montreal as our base for digital games. We are increasingly co-developing and co-publishing with partners who bring genre expertise, operating discipline, and cost advantages. As a result, we expect our total digital spend to decrease at least 25% annually by 2028. Third, ownable platforms. Hasbro already controls two of the more valuable platforms in TCGs and tabletop role-playing games. Magic: The Gathering Arena has generated nearly $1 billion since its introduction in 2019. D&D Beyond has more than 30 million registered accounts and reaches more than three in four hobby role-playing gamers each year. We also recently announced CharacterOS, our new behavioral licensing platform.

It is a comparatively modest and scalable B2B investment that can bring Hasbro characters into new digital contexts, from location-based entertainment to customer support to interactive avatars. A dozen Hasbro characters are already available for licensing pilots through our Sixth Wall AI studio and our close partner ElevenLabs' Iconic Marketplace. Arena, D&D Beyond, and CharacterOS are uniquely Hasbro opportunities with attractive underlying economics and meaningful upside. Fourth, partnership. As Scopely previously shared, Monopoly Go! is on track to exceed $8 billion in lifetime revenue this summer. It proves that Hasbro can create major digital economics without carrying all the costs and risk ourselves. Going forward, Hasbro will lean into a focused set of platforms and genres to create community hubs and major franchise moments for our brands.

Our partners will help us scale with more than 200 projects that are active or in development across mobile, casino gaming, console, and PC. That includes work with Scopely, Aristocrat, Tripledot, Marmalade, Gameberry Labs, Ubisoft, and Gameloft. The digital strategy is straightforward. We are taking lower conviction projects out of the portfolio, reducing our annual spend base, and concentrating investment behind the places where Hasbro has the best chance to build durable digital franchises, Magic, D&D, owned platforms, partner-led economics, and a concentrated number of high-conviction owned titles. Hasbro is already the number one digital licensor in the world. Between our internal teams and a robust partner roadmap, our plan is to press that advantage for more upside for our brands and our investors.

Now, I'll pass it over to Gina to share more about the numbers and the growth we delivered across our brands and segments. Gina?

Thanks, Chris. Good morning, everyone. We delivered another strong quarter with continued revenue momentum across both Wizards and Consumer Products and focused operations as we fully recovered from the cyber incident. In the second quarter, net revenue was $1.14 billion, up 16% year-over-year, with growth across both Wizards and Consumer Products. Adjusted operating profit was $282 million, up 14% versus last year, with an adjusted operating margin of 24.8%, down about 40 basis points, driven by incremental operating expenses and a non-cash impairment as we tighten the scope of our digital gaming efforts initially planned for release in 2028 and beyond. Adjusted earnings per diluted share were $1.28, down 2% as a result of the write-off.

Through the first half of the year, net revenue of $2.1 billion grew 15%, adjusted operating profit of $569 million grew 21%, and adjusted operating margin expanded by 150 basis points, largely driven by the outperformance in Magic. Total Hasbro adjusted EBITDA was $330 million in the quarter, up 9%, and $670 million for the first half, up 16%. The savings across supply chain, product development, and operating expense continue to support margin even as we absorb higher input costs, royalties, and ongoing investment behind our upcoming digital game launches in 2027. Through the first half, our cost transformation program remains on track, contributing $70 million against our full year commitment of $150 million.

Turning to the segments, Wizards delivered another stellar quarter. Segment revenue grew 27% to $664 million, powered by Magic, which was up 32% behind the release slate of Strixhaven and Marvel Super Heroes. Operating profit grew 12% to $270 million, and margin came in at 40.7%, down 560 basis points from a year ago due to the impairment. Entering the year, we made a deliberate decision to increase initial print and distribution runs for Magic releases. That reflected our confidence in the strength of the brand while also improving operational efficiency and positioning us to better meet demand at launch. We saw the benefits of that strategy in the second quarter. Our operations teams, together with our print partners, successfully executed the largest Magic premiere release in the brand's history with Secrets of Strixhaven, followed by our largest day one release with Marvel Super Heroes.

Delivering both milestones in a single quarter speaks to the progress we've made in scaling our supply chain and manufacturing capabilities. We're continuing to invest in those capabilities across products, regions, and formats, from Secret Lair drops to Commander Decks. We're expanding production capacity to better serve players while supporting the long-term growth of the Magic franchise. Consumer products revenue grew 5% to $463 million, with the North America business up 17% as we lap the impact from last year's later shelf set timing. The revenue impact from the cyber event was less than we forecasted, with our operations being fully restored ahead of schedule. In total, approximately $25 million of revenue was lost in the quarter compared to our previous assumption of $40 million to $60 million. Adjusted operating loss was $7.5 million due to higher input costs, royalties, and timing within our operating expenses.

Entertainment segment revenue was $12.8 million, down 20% against a difficult prior year compare. Adjusted operating profit of $8.6 million contributed at a 67.2% margin, up more than 400 basis points on favorable mix within Family Brands and film and TV. From a balance sheet and cash flow perspective, through the first half of the year, we generated $604 million in operating cash flow, contributed $147 million towards debt reduction, and returned $239 million to shareholders via dividends and share repurchases. Regarding the cyber incident, operations are back to normal. Cash flow remained healthy throughout the quarter, and outstanding receivables are in line with historical averages. A huge thank you to the technology, finance, and operations teams who successfully navigated the challenge. Our performance through the first half of the year puts us on pace to exceed our initial expectations.

In the second quarter, we accomplished several milestones, including exceeding expectations on our Marvel Super Heroes launch, resuming normal business operations, and executing the playbook to offset rising oil costs. Turning to our full year outlook, we are increasing our guidance for the year. We now expect consolidated revenue to grow 5%-7% year-over-year on a constant currency basis, with growth across each segment. We are raising adjusted operating margins to 25%-26% and adjusted EBITDA in the range of $1.45 billion to $1.5 billion. At the segment level, Wizards is now expected to grow revenue in the low double-digit range, with operating margins continuing in the low 40% range as volume growth more than offsets the impact of higher royalties, the digital game impairments, and operating expense.

On operating margin, the back half includes a step-up in royalties as well as operating expense, including approximately $20 million of marketing spend associated with the video game launches. For consumer products, we continue to expect revenue to grow low single digits for the year, with adjusted operating margin in the 6%-8% range. Overall volume growth and cost productivity will offset higher royalties and inflation. The lost revenue in Q2 is expected to be recouped in the back half behind the entertainment slate and as we accelerate innovation for the holidays. Back half operating margin will be buoyed by cost productivity across the P&L, including distribution, advertising and promotion, and operating expenses. Entertainment segment revenue is expected to be slightly positive year-over-year, with operating margins of approximately 50%.

As we look forward into 2027, we continue to expect that Wizards operating margins will remain in the high 30%-40% range, inclusive of the video game releases and amortization expense. As Chris mentioned, we believe 2026 is the peak investment year for digital games, we expect total digital spend to decline by at least 25% in 2028. For 2026, we are making a slight change to our capital allocation priorities for the year. We will continue to invest in the business, specifically behind our highest return growth opportunities led by Wizards, digital gaming, and licensing. Second, we remain focused on paying down debt and maintaining a healthy balance sheet. Based on the underlying strength in our cash flow, we are increasing our share repurchase target for the year from $100 million to a minimum of $200 million, we remain committed to our dividend.

As part of today's release, the board has authorized the third-quarter dividend. As we wrap up, Q2 was an important milestone, putting us on track for another year of growing both the top and bottom line. Wizards continues to be our biggest driver of growth. Consumer products is navigating near-term cost pressure while continuing to grow the top line. Our cost discipline is giving us room to invest behind the business. We are raising our full-year outlook with confidence, we remain focused on translating this momentum into results for the balance of the year.

With that, I'll turn it back to the operator for questions.

Thank you. We'll now be conducting a question-and-answer session. We ask you to please limit yourself to one question and one follow-up. To ask a question at this time, please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. Our first question comes from the line of Stephen Laszczyk with Goldman Sachs. It's just you with your questions.

Hey, guys. Thanks for taking the questions. Maybe first for Chris. One of the biggest debates around the stock at the moment is around the durability of growth for Magic, both as you look out into the second half of this year, but then as you look out into 2027 and beyond. You called out the Magic flywheel firing on all cylinders. I was hoping, Chris, you could maybe unpack that a bit more for us. What gives you confidence that Magic can grow off the higher base that we've seen over the last 12 months for the franchise? Then what levers come into focus beyond 2026 that you believe will drive continued growth for the business?

Hey, Stephen. Good morning. Thanks for the question. First up, Magic player base is growing. New players are growing. We're reacquiring lapsed players. I think that fundamentally it all kind of comes down to the math of how many people are playing the game and purchasing cards. Second, our distribution is growing double digits. It's roughly keeping on pace with overall revenue growth, and there's pretty high correlation with that. We're growing the size of the WPN. We're growing the number of mass-market accounts, and it's just easier to be able to buy the product and experience the product, which also helps a lot. Third, I think we have some really exciting partnerships and new initiatives planned as well. We had a fantastic lineup of first-party sets this year at MagicCon Amsterdam last week. We announced what our first-party lineup looks like for next year.

We have some really strong, I think, fantasy-adjacent Universes Beyond IPs coming up in 2027 and beyond that I think our fans are going to be thrilled by. I continue to believe there's a lot of upside in digital as we invest in new digital initiatives to expand the game beyond what we have for Arena. Those digital investments I don't think will really manifest in 2027. I think those will be more 2028 and beyond. I think when you just look at a healthy, growing player base, re-engaging lapsed fans, a highly engaged existing player base, and really strong underlying growth in distribution, I think it gives a bull case for underlying fundamentals for the brand and for continued growth.

Great. That's helpful. Maybe a second one for Gina, just on the outlook. We've now seen strong beats for both the first and the second quarters. It seems like Magic has a lot of momentum at its back. I was hoping maybe you could walk us through the puts and takes of the updated guidance for today, the thought process behind the raise, and to the extent there is upside or downside risk relative to the ranges that you put out today, where those would lie in the back half of the year.

Morning, Stephen. Look, we feel really good about our year. What the implied guidance now is saying is that the front half, we're basically passing through the front half upside that we delivered. I'll break it down by each of the pieces. If we look at the Wizards segment and what this means for the back half, our guidance is really unchanged on Wizards in the back half of the year. It really factors in that in total, Magic is going to be, call it, up kind of low single digits, which is comprised of a Q3 that is up mid-single digits and a Q4 that is down low single digits. Again, that Q4 being down is unchanged. We've had that assumption all year, and it's a factor of two things. One is that we're comping just a really ginormous Q4 in 2025.

As you look at the release schedule now that was made public at the last MagicCon in Amsterdam, you can see that our Q1 release in 2027 is going to be in early February. This compares to Lorwyn, which we launched this year, which was in the middle to call it late January. That difference in launch timing for our Q1 set is the difference of $40 million or so falling into a Q4 versus Q1. This is very typical within Magic, that Q1 timing can sway how our Q4 finishes, and that's what we've embedded in our guide. As Chris just said, we have a lot of momentum. We believe that there's a lot of durability in the brand itself. What you're seeing in the back half is really a math problem, and we feel good about us stepping into 2027.

On the CP business, the pivot that we're making here is we are moving into continued growth in Q3, Q4. Each of those quarters is kind of sized the same way, call it up low single digits. Behind the strength in both, I would say the innovation that is coming in time for the holidays, as well as we're in this normal pattern with our retailers in terms of shelf reset timing. There's not as much volatility in consumer products compared to what I just walked through on Magic.

That's helpful. Thank you both.

Our next questions are from the line of Xian Siew with BNP Paribas. Please proceed with your question.

Hi, guys. Thanks for the question. Can you talk a little bit more about the supply and ability to print Magic cards? I think last time you had mentioned about reprints taking a bit longer, but then you also mentioned the initial prints are maybe bigger. Given the increase in confidence and demand. Maybe can you talk about the puts and takes of how you're thinking about supply and then longer term ability to deliver on demand, especially as distribution's growing?

Got it. I guess I'll end with the punchline is we feel very confident in our ability to supply Magic. To your point, how you worded the question, the strategy that we took at the beginning of the year was to go in with larger initial print runs so that we could supply that first distribution push, as well as then supply and lean into the backlist or lean into reorders. That's very different than where we were last year, where we felt like we were chasing demand. In 2025, I think for some of our sets, we would absolutely say that we left some demand on the table. We made that pivot as we were entering into 2026, and you could see that strategy really playing through with our Q2 results.

It is true that our reruns are taking longer, but it's not as an issue per se, because we went in with higher production from the get-go. Alongside of that, looking at not only the demand forecast for 2026, but looking at it for 2027 and 2028, that gave us confidence to work with all of our print partners to start increasing fundamental capacity within their facilities. By the time we get to next year and the year after that, we feel really confident about our ability to supply.

Great. Thanks. Maybe could you talk a little bit more about the $56 million of impairment charge and kind of decision to maybe not adjust that out of results? I understand, it's probably also related to the capitalized cost, so you want to show it somewhere, but I guess underlying Wizards seems to be even stronger. If we kind of think of that impairment charge, maybe as a bit of a one-time or transitory cost. Is that kind of fair? I guess maybe higher level, it's kind of reiterating your point of focusing on the profitability of digital games.

Yeah. Correct. We've been pretty clear within our digital strategy that we're not going to adjust out, all of the amortization is going to hit the P&L, and it's not going to be adjusted out of EBITDA. This impairment took that same treatment. As Chris said, it was really a matter of us honing in on our digital strategy and reassessing the portfolio and figuring out which pieces fit, which pieces didn't fit. It's as simple as that. It is one-time in nature, but it is going to continue to stay as part of. It was an investment that we made that we now are undoing.

Makes sense. Thank you. Good luck.

Thank you.

Our next questions are from the line of James Hardiman with Citi. Please proceed with your question.

Hey, good morning. Thanks for taking my call. I think a lot's been made fair or unfair about sort of this Marvel Super Heroes versus Final Fantasy comparison. Anything you could give us on 2Q year-over-year? At this point, I don't think anybody expects that we'll see anywhere near the same sell-in in the second half from Super Heroes as Final Fantasy. You guys have made a comment about record day one and month one revenue. I'm assuming that's all wholesale, and that the retail might look a little bit different. Any color you could give us there and any way to think about sort of 2Q as a portion of sort of the full year contribution of those two sort of massive titles that'll obviously move the needle.

Hey, James. I'll take this then I'll turn it over to Gina when and if I say anything amiss. I would say Marvel Super Heroes is off to a really strong start. We're super pleased by it. Likewise, we were very pleased by Final Fantasy. I think if you can connect the dots with kind of what Gina was talking about our approach to supply chain and our approach to supplying the channel, we have bigger allocations to sell in initially, and that certainly has benefited Marvel versus where we were maybe a year ago with Final Fantasy. The reorders and all of the sell-through that we can track have also been quite strong for Marvel Super Heroes. It's not just a matter of pushing a bunch of things into the channel and letting them sit on inventory.

The inventory is at quite reasonable levels. The sell-through is quite brisk, and we've been seeing consistent reorders from across our channel partners for it. That said, who's ultimately going to take the title as the biggest Magic set of all time? Currently, it's Final Fantasy. Final Fantasy is fantastic. It continues to get reordered today. I would say Final Fantasy probably had a bit stronger of a set of follow-up kind of ancillary products that came out after the launch. We're pretty pleased with both.

Got it. Sorry, did you have anything to add to that, Gina, or?

No, my only point, James, is going to be that Super Heroes is our second-largest UB set. To the point of it's not quite as big as Final Fantasy yet, with an asterisk, it's still a pretty darn good set.

I think you're also going to have a tough time getting us to compare third-party IPs against each other. That's probably something we're loath to do.

Makes sense. Then obviously with another really strong quarter out of Magic, I think that bear case has sort of been asked and answered, at least for now. I guess the one hesitation that I think a lot of investors have at this point is just getting out in front of this video game launch next year. Anything you could tell us at this point that would help us sort of size how to think about the impact of that game? Obviously, it's really early. You don't know how many it's going to sell, but if I just think about sort of the low 40s margin for this year and then high 30s to low 40s next year, is the biggest gap sort of what you're assuming for the impact of the video games?

I apologize, just one point of clarification. X the impairment, that low 40s would have gone a little higher this year. Is that right?

Correct. Yes.

Yeah. I think the way you should think about Wizards is we continue to believe fundamentally in the business broadly, inclusive of digital and what we do on tabletop. Our guidance of high 30s to low 40s is the same guidance we've been given for this segment I think since we initiated our midterm guidance two years ago, that remains unchanged. The KPIs that we have on the new game releases, each are meeting our expectations, if not above our expectations. We feel like the games will be quality releases. They're newer franchises. They're improving genres where we've seen success either through ourselves or through our partners. There is going to be a range of outcomes.

I think as we've thought about the overall strength of the portfolio and the balance of the portfolio and the fundamentals associated with it, we continue to remain bullish on both the short and the long term for Wizards.

Got it.

The math that I would add to, there's really no difference in assumptions. The development cost for both games continues to be in the range with which we've talked about. That range where we said call it $100 million-$250 million. Exodus is at one end, I would say that Warlock is at another. That is no different. Our assumption on how the amortization itself is going to work with kind of 2/3 of it flushing through within the first three months of launch. If you think about that high 30s to low 40s number, you'll have the amortization expense, but then you'll also have additional marketing.

For all of Wizards, inclusive of Magic, the entirety of Wizards next year, there's anywhere from, call it $50 million-$75 million of incremental marketing expense that we're going to put into this segment to support all of the growth levers, both the video games as well as Magic itself. I think those pieces, the amortization and the incremental marketing is what probably takes that number. That creates that range and that number.

Got it. That's a really good color. Thank you both.

Thanks.

The next questions are from the line of Arpine Kocharyan with UBS. Please proceed with your questions.

Thanks. Thank you and good morning. Just to briefly go back to back-half guidance. If I take your unchanged guidance for Wizards low single digits in the back half after really strong first half, and seems like Consumer Products outlook, that's unchanged, you're already pretty comfortably in that 7% range of top line for the year. I'm wondering what does the midpoint or the low end of guidance range sort of factor in? What type of scenario? Is it more kind of the uncertainty with the holiday season in the back half within Consumer Products, or you still have obviously a massive comp in Q4 you have to offset? Just trying to see how you get to remotely close to 5% for the year. Then I have a quick follow-up.

Yeah. Good morning. Yes, it's very simply on the holiday. We've, I think, learned our lesson over the years that a lot can change between September and December, it just allows us a little bit of protection. Now, with that said, we feel really good about how we're forecasting the back half of the year. Wizards is a little bit easier in this sense because it's not as holiday and macro consumer dependent. Again, the retail side of the business always creates a question mark as we head in. Again, feeling good about the guidance we put out.

Great. That makes a lot of sense. Just quickly, looking into 2027 for Magic, I was wondering if you could give some more detail on should we expect a similar split of Universes Beyond sets releases into 2027 versus 2026, just percentage-wise, or are you still sort of working through maybe the timing and cadence of those releases? Anything you could share to bring us closer to what growth rate for Wizards could look like looking out beyond 2026 would be very helpful.

For Magic, we announced three of our first-party sets last week at MagicCon in Amsterdam, those will be spread pretty evenly out throughout the year. We haven't announced what the Universes Beyond sets will be, there will be three of them as well. This year, I think the simple math is this year we did seven sets, assume a pretty good hunk of the first set was sold in the prior year, call it 6.5. Next year, we will formally announce six sets, three Universes Beyond and three first-party IP. Likely there will be a bit of 2028 at the end of 2027. On a like-for-like basis, there'll be roughly the same number sets year-over-year.

I would anticipate that the percentage of first party versus third party would actually increase a bit, just because we had a few more Universes Beyond releases this year than we did first party releases this year.

That's super helpful. Thank you, Chris. Thanks.

Thank you.

The next questions are from the line of Anthony Bonadio with Wells Fargo. Please proceed with your questions.

Hey, guys. Thanks for taking my questions. Just on Marvel, I wanted to follow up, given the strength you've seen there so far. Can you just talk a little bit more about the contour of those sales as we think about the mass channel versus your typical independent hobby stores, and just how that performed with your legacy player base versus newer players to the extent you have visibility?

I would say that Marvel has done well across every channel and has particularly excelled with new players and in less traditional channels. Which is what you'd expect with an IP of that caliber. Mass, selling it in Disney theme parks, game stores that maybe don't have as much organized play like a GameStop, it's really done quite well there.

Got it. Thank you. Maybe one for Gina, just on the $56 million impairment charge on digital games. I guess, does that at all change how you're thinking about the spending outlook for 2027? Maybe put another way, does the fact that we're writing that off today bode incrementally well for how we should be modeling 2027 expense?

That $56 million was related to game releases in 2028 and beyond, it doesn't really change the economics for 2027. If you go back to our prepared remarks, 2026 will really be the peak year for spend on digital. We'll start to step it down. That's how I'd think about it.

Thanks, guys.

Thank you.

The next questions are from the line of Kylie Cohu with Jefferies. Please proceed with your questions.

Hey. Good morning, you guys. I was just wondering if we could maybe dimensionalize the largest sources of potential upside in the back half of the year. I really appreciate all the color you gave on what's baked in, but just kind of curious what could go right and where you would expect to see that potentially.

Hi, Kylie. Well, always, I think there's potentially some upside in Magic. We've certainly experienced that for the last 19 years.

We can't count them out.

Yeah. Certainly Magic is a strong underlying franchise. D&D is actually performing quite well as well, particularly D&D Beyond. We've been retuning that business, and that's been performing well. It's kind of a little overshadowed by how large and how important Magic is, but D&D has some nice upside. Inside of our toys business, we have a number of releases related to our GEM Squared theme, really kind of going after older, maybe less traditional collectors and players and crafters. Blooms by Play-Doh is one of the first examples of that. It's basically being able to craft beautiful flower bouquets with Play-Doh and a very innovative set of new tools that are very simple and easy to use. I think you'll see a number of those kinds of product releases from us that will lean into that.

Last but not least, our partners at Disney have a just fantastic lineup of films this year. We saw some nice benefit from Toy Story with Potato Head so far. Star Wars has been doing well, particularly with the collector segment. The new Spider-Man and new Avengers, we're already seeing Spider-Man pop off the shelves, and we expect Avengers to be no different in the holiday period.

Awesome. Super helpful. I guess just to follow up on that, with Magic being so strong, obviously Marvel doing well, I think you also mentioned the upcoming Hobbit release. Anything to kind of contextualize there, about what's going to contribute to the back half growth for Magic?

The one thing I'd just counsel people as you model Magic is not every set has the same composition of SKUs or card density or complexity. Marvel is a quite large release, very consistent with what we would have done several years ago with The Lord of the Rings or what we did last year with Final Fantasy. The Hobbit will be still a big release, but it'll be comparatively smaller in terms of the number of SKUs and number of cards that we release associated with that. You should scale those. Those correlate quite closely with overall sales potential. That's just a factor is how we think about quarter-over-quarter for Magic.

Not every release is going to be exactly the same. Not every release, even year-over-year, is going to comp the same because we just move things around, based on its readiness, based on anniversaries for IPs, flighting, and making sure themes stay fresh, and we don't overindulge in any one kind of trope. I think you need to think about that as you go through.

Got it. Super helpful color. Thank you, guys.

Our next question is from the line of Gerrick Johnson with Seaport Research Partners. Please proceed with your question.

Good morning. Thank you. I was curious a little bit about distribution of Magic. If we could get more detail on how much of Magic goes through the mass channel these days, how much through hobby shops, and specialty, and then also international versus North America.

Got it. Morning, Gerrick. Roughly the bulk of our distribution continues to flow through hobby. Call it 70%-ish is flowing through hobby. Mass is about 20%, international is about 10%. Frankly, all three of those tranches are continuing to grow.

Okay. On toys, all the retailers on their April quarter had nice comps, up mid-single digits and all called out toys, all of them, Target, Walmart, Five Below, GameStop. Are these retailers reacting? Are they placing larger orders for the fall sets? Are they getting less cautious than they have been before?

No, I don't see a material change in the retailers. Remember, last year, Q2, it was crazy because of what was happening in the tariff environment. We're comping a pretty atypical Q2. What I would characterize 2026 is we're back to kind of historical patterns within toy, where the shelf set timing is where you typically would expect it right after that back-to-school holiday. The order books themselves are reverting back to where we would've seen them in 2024 and 2023. I think the momentum on the category itself has remained strong. That's allowing retailers to have confidence in their shelf set. I think order books are building as expected or as historically we've seen. I don't see anything materially different.

Gerrick, the only color I'd add is retailers are traditionally pretty conservative. I think we've improved our ability to be able to provide them real-time product. That's kind of changed the mix about how much inventory they want to have on shelf. Where they are leaning in, though, and are pretty eager for more product, and frankly, consumers are giving them these tells, is in those GEM Squared categories. The gamified, entertainment-driven, multi-purchase, multi-generational, basically the stuff for kidults. That's why we're seeing such a great response with Magic. That's why we're seeing such a great response with Blooms. That's why we're seeing such a great response with things like Star Wars fan products, anything that has Spider-Man on the box. We anticipate that anything that will have Doctor Doom on the box as well.

Okay. Thank you very much.

Thank you.

Thank you. The next question's from the line of Eric Handler with Roth Capital. Please proceed with your questions.

Good morning. Thanks for the question. Chris, wondering if you could talk a little bit about your video game development. You've now had a couple games canceled this year, which quite frankly is no different than any other video game studio. What does that leave you in terms of the number of games you have in development? Sort of how are you thinking about the potential for an annual cadence of releases, does anything changes in terms of what you are looking to do internally versus licensing out?

Eric. Thanks for the question. I would say prior we had been saying from 2027 on, we'd have one to two significant game releases per year. I don't think that changes, but I think the composition of the types of games and the level of spending on those games and maybe how we go to market with them will change. We will still do some big games. I think those won't be every year. I think we'll have a combination of big games and then more service-oriented games and potentially some smaller, more focused content that's inside of games as well. I think a lot more of our games are going to be us working with a co-publisher, and leveraging their expertise and leveraging their capital, while they leverage our brands and kind of our fandom.

I think that will kind of lower the downside risk associated with it. I definitely think you're going to see us shifting more and more to those lower-cost partners and evolving our studio infrastructure such that more and more of our people sit in very high talent density but much lower man-month markets. I think just the combination of that, inclusive of marketing and inclusive of our total development spend, is you're going to see a pretty meaningful step down in the amount of investment that it'll take for us to build the business. We still are bullish about what that future of the business looks like. I think it's probably just going to be more focused and more profitable.

Very helpful. Regarding Magic, now that you've come out with your, at least announced what the first party Magic sets are going to be in 2027, I wondered if you could sort of qualitatively discuss how it compares with 2026 in terms of are there new series that are coming out? Are there more sequels with the first party sets?

Certainly Kamigawa is a sequel to when the last Kamigawa came out, it became the best-selling first party set of all time, but then basically every other first party set that came out after that kind of took the crown. I would anticipate that the new Kamigawa will do likewise. It should be pretty fun. The other two sets are more original settings for us. In terms of the Universes Beyond that we'll have next year, I don't want to give away too much on those. Each of them, I think, will be pretty cool. I think we have a different kind of announce strategy, which is more IP specific around some significant dates and significant events associated with those.

I think the one thing I'll say on the Universes Beyond partners that we have next year is, they'll probably be a bit more fantasy adjacent. I don't think any of them will take place in New York City because we definitely have gotten that feedback from some fans.

Thank you very much.

Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.