Hasbro, Inc. (NASDAQ: HAS) Q3 2021 earnings call dated Oct. 26, 2021
Corporate Participants:
Debbie Hancock — Senior Vice President, Investor Relations
Richard S. Stoddart — Interim Chief Executive Officer
Deborah M. Thomas — Executive Vice President and Chief Financial Officer
Chris Cocks — President, Wizards of the Coast
Darren Throop — President and Chief Executive Officer, eOne
Eric Nyman — Chief Operating Officer, Hasbro Consumer Products; Chief Consumer Officer
Analysts:
Stephanie Wissink — Jefferies — Analyst
Eric Handler — MKM Partners — Analyst
Arpine Kocharyan — UBS — Analyst
Jaime Katz — Morningstar — Analyst
Fred Wightman — Wolfe Research — Analyst
Gerrick Johnson — BMO Capital Markets — Analyst
Michael Ng — Goldman Sachs — Analyst
Drew Crum — Stifel, Nicolaus & Co. — Analyst
Alok Patel — Berenberg Capital Markets — Analyst
Presentation:
Operator
Good morning. Welcome to the Hasbro Third Quarter 2021 Earnings Conference Call. [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, Investor Relations. Please go ahead.
Debbie Hancock — Senior Vice President, Investor Relations
Thank you, and good morning, everyone. Joining me today are Rich Stoddart, Hasbro’s Interim Chief Executive Officer; and Deb Thomas, Hasbro’s Chief Financial Officer. Today, we will begin with Rich and Deb providing commentary on the Company’s performance. Then we will take 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. Our discussion will be based on adjusted results which exclude several items associated with the eOne acquisition outlined in our release today. 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 Rich Stoddart. Rich?
Richard S. Stoddart — Interim Chief Executive Officer
Thank you, Debbie, and welcome to everyone joining us today. I’m Rich Stoddart, Interim CEO at Hasbro.
Before we officially begin the remarks on the call today, I want to take a moment to reflect on the passing of our beloved leader and friend, Brian Goldner. I know many of you share in our sadness for his untimely passing. Brian was not only an accomplished CEO, he was a true visionary who transformed an almost 100-year-old toy and game Company into a leading global play and entertainment Company. But his impact can be felt well beyond Hasbro. He changed the game completely. He believed in the power of a story, seeing the potential for omnichannel storytelling and content built on powerful brands. He architected a compelling road map for Hasbro’s growth in the Brand Blueprint strategy and was so proud of where it has taken Hasbro, but even more so in its power and future potential now with eOne as an integrated part of the family.
I had the privilege to work together with Brian and the Hasbro team for the last seven years and serve on the Company Board, most recently as Lead Independent Director. During that time, the Company transformed its talent, its culture, its brands and its potential as it executed the Brand Blueprint. In my new role as Interim CEO, I will continue to work with a talented leadership team Brian put in place over the last 13 years, along with the powerful culture at Hasbro, to Supercharge the Blueprint and build on the Company’s strong momentum.
Hasbro is performing at a high-level and with a clear, well understood strategy. To ensure our success continues, I will be focused on five key priorities. Supporting the amazing people at Hasbro, ensuring they have what they need to succeed, while advancing our purpose-driven culture. Executing the Brand Blueprint. This strategy is central to continuing Hasbro’s transformation as a global play and entertainment Company. We are beginning to see the full Blueprint execution come to life, with significant potential to grow revenue and profit in the years ahead. Accelerating the growth of our Entertainment and Wizards of the Coast businesses where we have unique and distinct advantages in the market and a differentiated business model relative to our competitors. Delivering the guidance established for the year, while helping the organization manage through supply chain challenges; and continuing to drive strong cash generation in the business to pay down debt and fund the dividend.
This should sound familiar to many of you as it is what the leadership team has been focused on as well. It’s fitting that the strong third quarter results reflect the power of the Blueprint with significant growth in Entertainment as it returns to pre-pandemic levels, with another strong quarter in both tabletop and digital gaming from Wizards of the Coast, and with only a small decline in our Consumer Products business as we work to meet robust demand for Hasbro brands despite supply chain disruption. The diversification of the business enabled us to deliver a very strong quarter with 11% revenue growth, 6% adjusted operating profit growth, 5% gains in adjusted EBITDA and earnings and to generate significant cash. Deb will speak shortly in more detail to the third quarter performance.
A clear proof point of the Brand Blueprint strategy and the omnichannel storytelling opportunity for our brands is in the success of the CGI animated feature, My Little Pony: A New Generation, which debuted on Netflix September 24. In its first weekend, the movie reached number one on Netflix in the Kids Top 10 across 86 countries. It also reached the number one spot for movies, regardless of genre or target demo in 20 countries, including the UK, Germany, Brazil and Mexico. The success of the film was made possible by the collaboration and partnership of the talented brand teams at Hasbro with the teams at eOne, who together created a beautiful engaging film for fans around the world to enjoy. The film’s success is also a testament to their agility to successfully market and launch a picture originally planned for theatrical release on a streaming platform. The movie’s success builds deeper connections with consumers, driving incredible engagement on social media across Instagram and TikTok.
The brand’s relaunch, powered by an all-new Mane 5 cast of ponies, drove revenue growth for the franchise for the second straight quarter, and the first positive quarter since the fourth quarter of 2017. Third quarter point of sale momentum began to rebound as the merchandise tied to the brand reintroduction and movie began to hit shelves. In the four weeks leading up to the movie, POS was up mid-single digits globally, and the week following the movie resulted in global POS gains of more than 150%. This trend has remained very strong in the weeks following. The movie launch was further supported with a robust licensing program, including a dedicated MY LITTLE PONY shop on Amazon and cross-category campaigns at several major global retailers. We’ve seen a favorable response from retailers and consumers and the Entertainment plan is only beginning as we are supporting the film with a robust content road map from eOne, including Netflix specials and new series, as well as digital content in the coming year.
Another significant milestone this quarter was the launch of Hasbro’s PEPPA PIG and PJ MASKS toy and games lines in markets around the world. Brought into the Hasbro portfolio via the eOne acquisition, these brands significantly strengthened Hasbro’s presence in the preschool market. We developed deep lines for each brand, as well as expanding their licensed consumer products presence. Each of these launches are off to strong starts, and contributed to growth in the quarter, but they, among many other brand campaigns, were limited in their upside in the short-term due to the supply chain challenges global companies are facing. In the third quarter, we had orders for approximately $100 million, which did not ship by quarter end. The vast majority of this has already been delivered in the fourth quarter. These factors were more than offset by the contribution of our Entertainment business, which is up substantially versus last year’s third quarter and up versus 2019, as well as the continuing momentum in the Wizards of the Coast business. Through our differentiated strategy, they delivered the revenue and profit growth for the quarter.
As we look to the fourth quarter, and the holiday season, there is strong demand for Hasbro toys and games. We are expertly managing the supply chain to ensure the shelves will be filled with Hasbro products this holiday. As a result, we believe we will grow revenue in the fourth quarter, through the combination of our three business segments, and deliver full-year double-digit revenue growth in the range of 13% to 16%, along with adjusted operating profit margins in line with last year’s adjusted rate of approximately 15%.
Before turning the call to Deb, I want to touch briefly on the plan for naming a permanent CEO. Our Board is and always has been actively engaged in succession planning for the CEO and other senior executive roles. This work provides a strong foundation for the naming of a new long-term leader for Hasbro and is well underway. Until that time, I am working closely with the outstanding group of talented individuals making up our senior management team.
In addition to Deb, joining me today for the Q&A portion, we have Chris Cocks, President and COO of Wizards of the Coast and Digital Gaming; Eric Nyman, Chief Consumer Officer and COO of Hasbro Consumer Products; and Darren Throop, CEO of eOne.
Now, I’ll turn the call over to Deb. Deb?
Deborah M. Thomas — Executive Vice President and Chief Financial Officer
Good morning, everyone. On behalf of Hasbro employees globally, I would like to thank Rich for stepping up at this time for us, our Board, our shareholders, and our Company. The past couple of weeks have been difficult for all of us at Hasbro. Brian is missed but the impact he made is unmistakable. We heard from so many of you remarking on Brian’s leadership and your positive personal interactions with him. Thank you for sharing these memories with us. Brian empowered me and the executive team to run Hasbro and together we are and will continue doing that. Brian was proud of our third quarter results. They showcase the strength of Hasbro’s unique business model, with growth in Entertainment and at Wizards in both tabletop and digital gaming. Our results also show the strength of our global teams as they expertly manage through supply chain disruptions and position us for growth in the fourth quarter and for the year. Brian believed, as we do, in investing to grow, to unlock Hasbro’s full potential and create value for our shareholders. Our priorities remain the same, and we are executing against those priorities.
The quarter highlighted our focus on de-levering our balance sheet, as we repaid an additional $400 million of debt, bringing our year-to-date total to $972.5 million of long-term debt retired. We also paid the dividend, which has been maintained following the eOne acquisition and throughout the pandemic. At quarter end, cash on hand was $1.2 billion and we continue to make significant progress toward our goal of returning to our target of 2 times to 2.5 times debt-to-EBITDA and maintaining our investment-grade rating.
For the quarter, revenue grew 11% versus last year, and 6% versus pro forma 2019. MAGIC: THE GATHERING, MY LITTLE PONY, PEPPA PIG and PJ MASKS were among our largest revenue gaining properties globally in the quarter, further supported by significant entertainment deliveries. These include My Little Pony: A New Generation for Netflix, Yellowjackets for Showtime; Fear the Walking Dead for international markets; Come From Away and Finch for Apple TV, as well as The Rookie for ABC.
Entertainment segment revenues grew 76%, with gains in scripted and unscripted television, live action and animated film, and animated content. This performance has us well on the way to reach 2019 levels of Entertainment revenue for the full-year, excluding the Music business over the second half of the year. The segment delivered adjusted operating profit of $42.1 million, or 12.9% operating profit margin, up from an adjusted loss of $3.6 million last year.
We’re developing over 200 projects across film and TV, including content for over 30 Hasbro brands for the coming years. Year-to-date through September, we’ve invested approximately $526 million in content development and continue to anticipate a full-year spend range of $675 million to $750 million.
For the fourth quarter, we have significant deliveries planned, including Graymail, a new scripted program for Netflix; additional episodes of The Rookie and Yellowjackets; and the films Clifford the Big Red Dog and Mrs. Harris Goes to Paris.
Wizards of the Coast and Digital Gaming segment revenues increased 32%. Wizards had a great third quarter and we expect the business to deliver its goal of doubling from its 2018 revenue by the end of 2021, two years ahead of plan. MAGIC: THE GATHERING and DUNGEONS & DRAGONS led this growth both in the quarter and over the past few years, with gains in both tabletop and digital gaming revenues. It was the second largest quarter in Wizards’ history, behind only Q2 of this year. Among the MAGIC releases in the quarter, our third quarter premier set, Adventures in the Forgotten Realms, launched July 23 and became our first co-branded premiere set. Fans of both MAGIC and DUNGEONS & DRAGONS embraced the product, and it’s on track to be our best-selling summer release of all-time. Importantly, our digital investments are driving revenue growth. Magic: The Gathering Arena mobile continues to grow. It’s a meaningful source of new players, and our releases were bolstered by their engagement in the game. Our licensed digital gaming business also delivered strong growth in the quarter. Operating profit in the segment increased on the higher revenues. Investments in future game development and support of new game launches, as well as increased digital gaming depreciation, reduced operating profit margin from last year.
Consumer Products revenue declined 3%. There is strong demand for our brands but we were unable to fulfill approximately $100 million of product we had orders for during the quarter. Including these missed shipments, revenue would have increased 5%. In September, we shipped the most volume ever domestically in a single month, and through today, we have shipped the majority of what we didn’t deliver in the third quarter. This achievement is remarkable given it was accomplished in the middle of a global pandemic with unprecedented supply chain challenges across the globe.
As we shared last quarter, we took steps early to mitigate risk, including activating alternate ports in China and the US, expanding our shipping capacity, working closely with customers to provide support where we can and prioritize supply based on inventory and customer needs, and in certain instances using airfreight to ensure delivery. The team has done an amazing job and continues to work nonstop. Global point of sale declined mid-single digits. As we improve our in-stock levels, and see the effects of a significant increase in advertising spend and out of aisle execution, we expect significant improvement.
Within Consumer Products, Hasbro Gaming revenues grew in the quarter, led by demand across our gaming portfolio, and Emerging Brands revenue was up, fueled by our toy and game launches of PEPPA PIG and PJ MASKS. In our Franchise Brands, Rich already spoke to the success of MY LITTLE PONY and how this positions us well in the relaunch of the brand. TRANSFORMERS revenue increased in the quarter. The final chapter of the War for Cybertron Trilogy launched July 29 on Netflix driving continued demand in our Generations Fan product. We also celebrated a new milestone for the TRANSFORMERS Franchise, when Universal Studios Beijing opened Transformers: Metrobase, the first-ever TRANSFORMERS-themed land. In partnership with Paramount, production on Transformers: Rise of the Beasts continues for theatrical release next summer.
Partner Brands revenue declined, but Hasbro products for the Marvel portfolio grew, including Marvel Legends and the new preschool product line launch supporting Spidey and His Amazing Friends. We also introduced new products to support Marvel Studios’ Disney+ series and the theatrical release of Marvel Studios’ Shang-Chi and the Legend of the Ten Rings. Ghostbusters revenue increased with the primary launch of the toy line in August for the feature film Ghostbusters: Afterlife from Sony Pictures, coming to theatres November 19.
Operating profit for the Consumer Products segment decreased $15.8 million, reflecting the lower revenue and incremental expense for freight and related costs. Price increases to mitigate the higher expenses in shipping and input costs went into effect in most markets in August and will be fully implemented for the fourth quarter.
Looking at our overall Hasbro P&L, gross margin, including cost of sales and program amortization, declined 130 basis points. This reflected essentially flat cost of sales dollars. Given favorable mix and growth in Entertainment, cost of sales declined 340 basis points as a percent of revenue. The robust Entertainment revenue growth drove an associated increase in program amortization of 470 basis points.
Product development increased $17 million, led by incremental investments in future tabletop and digital games at Wizards and our ongoing commitment to innovation across the business.
Advertising expense increased $26 million, including promotional activity in support of the My Little Pony movie and advertising behind new Wizards’ game launches. We have aggressive advertising plans for this holiday season, shifting more dollars this year into the fourth quarter, to drive point of sale. We will, however, closely match this expense with inventory availability.
Adjusted SD&A increased $35 million and continues to reflect higher expenses as the business returns to pre-COVID levels. This includes higher freight costs, incremental marketing and sales expense, increased depreciation associated with capitalized digital games, and increased compensation. Despite these higher expenses, SD&A remained flat as a percentage of revenue.
The adjusted underlying tax rate for the quarter was 23.4% compared to 19.9% a year ago. The rate is mainly driven by a change in the mix of income. We continue to expect the full-year underlying rate to remain at approximately 21%.
Our balance sheet is strong. In addition to our cash position and lower debt, DSOs were 68 days, a reduction of five days compared to Q3 2020, reflecting both higher revenue and good collections, despite shipping a large volume of product late in the quarter.
Inventory increased slightly year-over-year but declined absent FX. At quarter end, we had less in finished goods on hand than typical, and significantly more in-transit inventory. In general, total transit times have nearly doubled across all lanes and, on certain lanes, transit times are as much as 50 days longer compared to pre-pandemic levels.
Our strong third quarter and year-to-date performance has us on track to meet our guidance for double-digit revenue growth, which we now are expecting in the range of 13% to 16% for the full-year and maintaining an adjusted operating margin of approximately 15%. We have orders to support the high-end of the revenue growth range, but there are supply chain factors out of our control which could impact our ability to fully achieve the upside.
I am incredibly proud of how the organization has come together this year. Despite many obstacles, our results showcase the strength of our business, our strategy, and our team.
Our leadership team is now happy to take your questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Thank you. And our first question is coming from the line of Steph Wissink with Jefferies. Please proceed with your questions.
Stephanie Wissink — Jefferies — Analyst
Thank you. Good morning, everyone. I just want to start by saying, for those of us on this side of the call, Brian’s absence and his voice is really felt today. So, it was a privilege to know him and our sympathies are with all of you and his family.
Rich, my question is for you. It’s a question we’re getting most from stakeholders right now which is, can you share a little bit more about the search in terms of characteristics, background, as you think about the Blueprint? Who is the type of individual that you are looking forward to really guide the next few years of growth for the Company? Thank you.
Richard S. Stoddart — Interim Chief Executive Officer
Thanks, Steph. And I have to say, how much we appreciate your sentiments. Brian didn’t just touch Hasbro, he touched a lot of people in the world. And so, thank you for that.
So, as I said in my remarks, the search for the permanent CEO is not something that is just beginning now. The Board is and always has been thinking about succession, as a matter, of course, it is a responsibility of the Board to think through. And that work that they’ve been doing, I think provides a very strong foundation for the naming of the new long-term CEO and that process is well underway. I will say the commitment and belief in the Brand Blueprint as the strategy for Hasbro go forward is greater than it’s ever been. I think what you saw in this quarter is just the beginning of the potential of the Blueprint to drive this Company forward. I’ll use the Brian-ism, I guess, right now to say this is not a point of arrival for Hasbro — not a point of departure for Hasbro. It’s a point of — sorry, not a point of arrival, but a point of departure, right? This is the beginning of the Blueprint proving itself out in the world. And so, I think the characteristics of a leader are: A, a fantastic leader who believes in this team and this Company and this culture to take it forward; and B, someone who can continue to expand on the Blueprint and drive that vision forward.
Stephanie Wissink — Jefferies — Analyst
Deb, could I put out a follow-up question for you on the guidance. I’m just getting a few emails this morning on what’s built into your operating margin target from a cost and pricing perspective in the fourth quarter? Have you taken a similarly conservative approach as you did to the sales guidance?
Deborah M. Thomas — Executive Vice President and Chief Financial Officer
Yeah. Thanks, Steph. I appreciate the question. No, absolutely. As we said, we have orders on hand to meet the top end of our guidance range for revenue, but we are showing the cost pressures that the rest of the industry is feeling and we are also feeling the supply chain pressures that the rest of the world is facing right now. It’s funny, I went to buy something at the grocery store the other day and the shelf was empty and I’m like, okay, I’m not going to settle for another brand, I’ll just go without for now. But the important thing is, we’ve got everything in place. So there will be Hasbro toys and games on the shelves this holiday season. The team has put a lot of process in place, some of which includes air freight. Our air freight expense was much higher in the third quarter than it typically is and we do expect it to be higher in the fourth quarter. We don’t intend to take additional price increases this year. So what we have built in is what is there to cover our costs. So overall, we still are belief — firm belief — in firm belief — sorry, that we can hit our guidance of double-digit revenue growth at 13% to 16%. We have orders for the high end. But some things will be beyond our control and we believe that we can achieve operating profit levels in line with last year for the full-year as well.
Stephanie Wissink — Jefferies — Analyst
Thank you very much.
Operator
Our next question is from the line of Eric Handler with MKM Partners. Please proceed with your questions.
Eric Handler — MKM Partners — Analyst
Good morning. Thanks for the question. I wonder if you could talk a little bit about MAGIC: THE GATHERING and curious if you’d be able to give us maybe a little insight into sort of the balance of revenue between physical play and digital play. What’s been the impact on, let’s say, daily average users, now that mobile is — has had time to ramp up a little bit?
Richard S. Stoddart — Interim Chief Executive Officer
Yeah. Thanks for the question, Eric. So, I know this is a question you’ve been poking at in the past, and I want to reiterate what I think the team has been saying in the past, which is that these — the mobile and digital gaming and tabletop gaming or not — neither cannibalistic nor separate. They really are an ecosystem that mutually supports it. So we are continuing to grow Magic Arena. The mobile platform is a critical source of new users for Magic Arena. And at the same time, tabletop is increasing as well. And I think what you’re seeing is the power of that expanded omnichannel experience.
Maybe, though, Chris, I’ll just ask you if you want to comment any further on Eric’s question?
Chris Cocks — President, Wizards of the Coast
Sure. Thanks, Rich, and hi, Eric. Yeah. The MAGIC business had a very strong Q3. And as overall had a very strong 2021. By the end of Q3, in fact, MAGIC is already bigger this year than it was in all of 2020, which was a record year for us. Arena is a major contributor to that. Mobile has been a terrific source of new users for the brand and we see a very healthy crossover between users who come onboard digitally who migrate to tabletop and likewise tabletop players who want to play some more MAGIC in play both on mobile and PC. And so, I think the combination of those factors plus the segmentation we’ve been driving in our business has done an excellent job in terms of growing our overall user base, enhancing our engagement with fans and driving our average revenue per user.
Eric Handler — MKM Partners — Analyst
Great. And just as a follow-up, I know during the pandemic is a number of hobby stores were closed, e-commerce was beneficial for selling physical sets. I’m curious now that hobby stores are fully reopened, we’re seeing more in-store tournaments. Are you starting to see an oversized rebound with the physical sets at all?
Richard S. Stoddart — Interim Chief Executive Officer
Chris, do you want to take that?
Chris Cocks — President, Wizards of the Coast
Yeah, sure. Yeah. We were very impressed with our hobby channel partners and how they rallied with the realities of the pandemic. Prior to April of 2020, only about 35% of our hobby stores offered any kind of online solution or curbside solution, and over the last 18 months, we now have over 80% of them operating their wares online and has a curbside solution. And so, our overall mix of business has actually stayed remarkably similar during the overall pandemic. Hobby has grown, our online and e-commerce partners have grown, and our mass partners have also grown. And I think it’s a testament to kind of like the strong foundation that is underlying, both the MAGIC business, as well as the D&D business and our ability to partner with all of those partners across different channel mixes.
Eric Handler — MKM Partners — Analyst
Great. Thank you very much.
Operator
Our next question is from the line of Arpine Kocharyan with UBS. Please proceed with your question.
Arpine Kocharyan — UBS — Analyst
Thanks very much. Thank you. Please accept our heartfelt condolences. We were very saddened by Brian’s passing. He will be very much missed.
To follow up on earlier question, even top end of guidance for Q4 would imply perhaps less than 10% operating profit margin. First, is my calculation correct? And I know there are some moving parts like Prime Day comps and MAGIC card release sort of cadence. But could you perhaps spend a few minutes going over kind of puts and takes? I know Deb you answered a good chunk of it already, but if you could sort of size it for us, that would be great? And I have a quick follow-up. Thank you.
Deborah M. Thomas — Executive Vice President and Chief Financial Officer
Sure. Well, we talked a lot about the product that we have to deliver and it’s a matter of fact, the $100 million that shifted from Q3 into Q4, we talked about most of that’s already been delivered. And in fact, if you look at just our inventory, never mind retail inventory, 40% of our inventory balance at the end of the quarter was in-transit. So that’s here now and we can ship that. So we’re very excited about the opportunity. We have plenty of things on the water. We are going to continue to use airfreight for the quarter and the team has done a terrific job. Actually, making sure that we will have full shelves of product, Hasbro toys and games for the holiday season.
That being said, some of that costs a bit more. And we’ve also talked a bit about advertising. It’s very important that the consumer comes and takes away that product. So, in an effort to make sure that the POS is there that we’re reaching the consumer will have higher advertising expense in the quarter as well. So some of the puts and takes, some of the costs are going to be a bit higher, which is why we said, we believe our overall gross margin will be more in line with 2019 — pro forma 2019 than 2020 because of the excellent deliveries that we expect on the entertainment side, the good mix from our Wizards of the Coast business, but also our Consumers Products business, which does have some pressures on the cost side as well. So all of those things brought together, which is the beauty of our portfolio and our advanced business strategy, we have three businesses that work together that are going to allow us to achieve that revenue growth and operating profit margins that are in line with a year ago at about 15%.
That being said, we also believe in our medium-term guidance that there is no inherent reason why we can’t have operating profit margins over 16% and we’re well on our way to managing that. We’re just dealing with some short-term issues that the rest of the world are dealing with as well.
Arpine Kocharyan — UBS — Analyst
Right. Right. No, thank you. Are you able to share what percentage of your volume you expect to go through direct imports in Q4? If not, no problem. Thank you.
Deborah M. Thomas — Executive Vice President and Chief Financial Officer
So overall, our direct import business, we do expect it will be around similar levels to a year ago. I will say, with the supply chain issues that the world is facing, our customers aren’t immune to that as well. And we’ve been working very closely with them to ensure they have the products they need on shelves at the right time. As a matter of fact, partnering with them, if we can get containers and they can’t, for example. So overall, I think our direct import business maybe down a tick from a year ago, but overall in line, not significantly different.
Arpine Kocharyan — UBS — Analyst
Thank you very much.
Operator
Our next question is coming from the line of Jaime Katz with Morningstar. Please proceed with your questions.
Jaime Katz — Morningstar — Analyst
Hi. Good morning. And just want to echo the condolences that have already been sent to the team. But I’m hoping you can comment on capital allocation and particularly the continued reduction of debt and the walk back to investment-grade. Is there an ability now to get back to that investment-grade target faster than originally planned that three to four years? Thanks.
Deborah M. Thomas — Executive Vice President and Chief Financial Officer
Thanks, Jamie. Yes. So we’re really proud that we’re an investment-grade Company and we’ve maintained our investment-grade status even after the acquisition of eOne. It’s been very important to us and we’ve worked very closely with the rating agencies to make sure they know our plans and how we’re stepping along the way. Our capital allocation priorities really are the same. First and foremost, we invest in our own business. You see that in the growth in Entertainment this quarter. You see it in the growth in Wizards. You see it behind all the wonderful innovation in our Consumer Products business. So we too believe in investing in ourselves first. Beyond that, we are committed to getting back to the 2 times to 2.5 times debt-to-EBITDA. Right now, that is the right place for us. We believe that lets us keep investing for the future and continuing the growth trajectory that Hasbro has been on.
And then thirdly, we will turn excess cash to our shareholders. We have had maintained our dividend even after the acquisition of eOne. We maintained our dividend throughout the pandemic. That’s important to us and to our Board as well. So we continue to have our capital allocation strategy to be consistent with the way it’s been in the past and we are proud to be an investment-grade Company.
Jaime Katz — Morningstar — Analyst
Thank you. I’m sorry, I misspoke. I meant to say the leverage target rather than investment-grade. And then, are there any idiosyncrasies we can be — we should be aware of on the cadence of spend for programming over the next few quarters that could help us think through how that cost metric might change?
Deborah M. Thomas — Executive Vice President and Chief Financial Officer
So from a spend standpoint, we still expect to be between the $600 million and $750 million for the full-year this year, probably a little bit closer to the high-end, if you look at where we’re sitting this year. And as you know, that spend will translate to revenue in future years. So — and some this year as well. We’ve got great deliveries planned for the fourth quarter.
And maybe, Darren, you could talk a little bit about some of the deliveries and what we have planned for 2022?
Darren Throop — President and Chief Executive Officer, eOne
Yeah, sure, Deb. Thanks. Yeah. Through the fourth quarter, as was mentioned, we’ve got more deliveries coming for The Rookie Season 4. We’ve got Yellowjackets deliveries through this quarter. We’ve got the second season Moonshine delivering. We’ve got lots of children’s animation product delivery PEPPA Season 9. We’ve got Clifford the Big Red Dog coming to theaters in November. So we’ve got a lot of activity delivery, a lot of the programming that we’ve been producing throughout this year. As we roll into 2022, we see strong cadence of continued production, both on returning series, but also on new series. And, obviously, since the acquisition, we’ve been really working hard on Hasbro content. I think it was mentioned before in the call, there’s over 30 brands in development and there is multiple entertainment streams being developed against those brands, meaning in some regards like for TRANSFORMERS, for instance, we’ve got a feature film in production. We’ve also got animated content coming in and other programs planned for TRANSFORMERS and you’ll see that across the entire Hasbro portfolio. So, a lot planned for the fourth quarter, but 2022 looks to be a very, very strong year coming as well. And you’ll see the deliveries as Deb said, supporting that investment in content spend through 2021 and 2022.
Jaime Katz — Morningstar — Analyst
Thank you.
Operator
The next question is from the line of Fred Wightman with Wolfe Research. Please proceed with your question.
Fred Wightman — Wolfe Research — Analyst
Hey, guys. Good morning. Deb, I just wanted to follow up on your commentary about the medium-term operating margin getting back to over 16%. When you look at a lot of what you’ve dealt with this year in terms of the input costs, how are you viewing those as far as transitory versus structural? And what do you think that means for pricing going forward? Could we need to price a little bit more over the next few years to offset that? How does that all shake out for that margin trajectory going forward?
Deborah M. Thomas — Executive Vice President and Chief Financial Officer
Good morning, Fred. Yeah, you’re right. Everyone — the whole world I think is seeing input costs going up right now. Trends have been good lately. We’ve seen them coming down a bit in the last short period. However, the beauty of our Consumer Products product line is, a lot of that product line is new every single year. So we can engineer our products to hit certain price points. That being said, we do believe that there is going to be the cost inflation we’ve seen is going to continue for a period of time. Looking at inflation, we’re dealing in inflationary markets in most places. And again, I’ll go back to what I could find on the shelves of the grocery store was more expensive, right? So it’s a matter of, I think the — all industries are facing a bit of this right now. But we do have the opportunity to reinvent our product line — the majority of our product line every year and therefore, we can just take cost out of it as we do that. We’ve been working very closely with our manufacturing partners to ensure they’ve got the right components to make the product and have it. That’s what’s most important. And then we’ll ensure that it’s made the right way and priced appropriately for the market as well.
Fred Wightman — Wolfe Research — Analyst
Makes sense. And then, I guess, specifically on the fourth quarter, if we think about the timing of when those price increases hit in August. How should we be thinking about the Consumer Product margin specifically in the fourth quarter?
Deborah M. Thomas — Executive Vice President and Chief Financial Officer
So for the fourth quarter, we continue to see escalating costs from when we put our price increases in place. So, you just think about the cost of airfreight and the cost of freight — everyone has talked about supply chain and the cost of shipping, right, and ocean channels and what’s in place for acquiring additional transport costs to get product [Technical Issues] holiday, which we will have. But that does put some near-term pressure on some of the margins. The full impacts of our price increases will take effect in the fourth quarter. And overall, we still believe our total gross margin, which includes our program amortization which is representative of our deliveries as well on the Entertainment side, as well as our Wizards of the Coast business which we’ve seen the digital side of that business grow, that’s why our diversified business model, really, let’s say, we think our gross margins will be in line with 2019 but more 2019 than 2020.
Fred Wightman — Wolfe Research — Analyst
Great. Thank you.
Operator
Our next question is from the line of Gerrick Johnson with BMO Capital Markets. Please proceed with your questions.
Gerrick Johnson — BMO Capital Markets — Analyst
Great. Thank you. Good morning. I’d like to express my team’s condolences as well. Brian was the toy G.O.A.T., and my favorite sparring partner, so he’ll definitely be missed.
Deb, I wanted to ask you about PEPPA PIG and PJ MASKS, the insourcing of those products. What did those contribute in terms of, say, net revenue gain and net operating profit gain by bringing those in-house in the quarter? Thank you.
Deborah M. Thomas — Executive Vice President and Chief Financial Officer
Well, thank you, Gerrick, and thank you for your sentiments. We’ve appreciated everyone’s, but you may have been Brian’s favorite sparring partner as well. So, I — we all really appreciate your comments very much, all of you. So thank you and thank you for all the nice minutes that you sent, that meant the world to us and to everyone here.
The PEPPA PIG and — we’re so excited about PEPPA PIG and PJ MASKS. We started shipping products for our line for PEPPA and PJ in the third quarter. Some of this supply challenges we had did impact those lines, but they are here now and on the way. It’s — from the quarter’s standpoint, we just started shipping in the third quarter. So we expect to see a bigger impact in the fourth quarter. As we’ve said, we think that the total impact for the year would be $75 million to $85 million, I think we said, and we are on track for that, for the impact for the full-year and PEPPA and PJ together have operating profit margins very similar to our franchise brands. So you think high-teens, low-20s operating profit margins. So we’re really excited about the brands, the lines, we fully integrated our Consumer Products business now. We’ll continue to have external licensing partners through next year and beyond that as well, because there are some lines that we won’t take on ourselves that we have great licensees that are doing that. So, we successfully integrated most of that business. We’ll continue seeing more of the business integrated in 2022 and we’re really excited that PEPPA and PJ are part of the Hasbro family.
Gerrick Johnson — BMO Capital Markets — Analyst
Great. Thank you, Deb.
Operator
Our next question is from the line of Michael Ng with Goldman Sachs. Please proceed with your question.
Michael Ng — Goldman Sachs — Analyst
Thank you for the question. First, I’d also like to express my condolences on behalf of our team to Hasbro and Brian family and friends for their loss.
I just have one question for Chris or Deb. I was just wondering if you could talk a little bit about the cadence of MAGIC: THE GATHERING cards that releases for the rest of the year and that — how that might impact revenue growth? And then, could you also just comment on the content and gaming outlook for 2022 for Wizards of the Coast more broadly? Thank you very much.
Richard S. Stoddart — Interim Chief Executive Officer
Chris, why don’t you take that?
Chris Cocks — President, Wizards of the Coast
Sure thing. So, in 2021, we expanded our number of major set releases from six in 2020 to seven in 2021. Our next big release will be in Q4, which is called Innistrad: Crimson Vow, a vampire theme set, that’s part of the twofer that we released the first part Innistrad: Midnight Hunt in Q3. And we expect continue to growth in Q4. But as Deb mentioned in the upfront remarks, we think that will be moderated just based on set timing releases and competition. For 2022, we also expect to have seven major releases comping 2021. Those set releases will vary slightly in timing and composition. But based on the early fan reactions that we received in Q3, we feel very good about the quality of those sets and how our fans are responding to them. And they include everything from returning to old classics, like Kamigawa and Dominaria and the Brothers of War to exploring new themes like a gangster theme set for the spring called the Streets of New Capenna. And then continuing to expand the number of formats and segments of consumers we are going after, including an expansion of our Universes Beyond initiative, which is taking outside IP from MAGIC and bringing it into the MAGIC play system like we did in Q3 with D&D and MAGIC with Adventures in the Forgotten Realms, which set a record for us in terms of our summer releases. It was the biggest summer set release we’ve ever had. So, we feel good about the balance of the year and we feel very good about the initial reactions to our 2022 set release schedule.
Michael Ng — Goldman Sachs — Analyst
Thank you for all the thoughts, Chris.
Operator
Our next question is coming from the line of Drew Crum with Stifel. Please proceed with your question.
Drew Crum — Stifel, Nicolaus & Co. — Analyst
Okay. Thanks. And our condolences to Brian’s family and the Hasbro team. So my question is on the sales guidance, with the language for 13% to 16% growth this year, is there any more precision you can offer at the segment level? And, I guess, more specifically, you were previously forecasting Consumer Products up mid-single digits for the year. Is that something you see is still achievable?
Deborah M. Thomas — Executive Vice President and Chief Financial Officer
So, overall, we do expect growth in all of our segments for the fourth quarter. That being said, there are some things on the supply chain side that really are beyond our control. I mean, we’ve all read about every industry being impacted by ships floating outside of ports. That being said, we’ve increased a lot of ports.
And Eric, why don’t you actually talk a little bit about what we have put in place to ensure that we’ll be able to get product on the shelf for this holiday?
Eric Nyman — Chief Operating Officer, Hasbro Consumer Products; Chief Consumer Officer
Sure. We feel confident that there will be plenty of Hasbro toys and games here for the holidays. And I think that’s the headline we want to stress. We’ve already talked about the headwind of $100 million shifting from Q3 to Q4. And I do want to highlight, as Deb mentioned, the majority of that has already shipped to our customers around the world, which is really just highlighting that this is a phasing issue, not an issue of lost orders or lost sales.
With regards to mitigation, we are proud of our teams. We took several steps to mitigate some of the challenges that we saw happening earlier in the year. We activated new ports in both China and the US. We’ve added multiple ocean carrier contracts to increase capacity around the world. We’ve expanded our trucker capacity as well, which helps move products to warehouses all over the world. And we’re ready for Q4 with plans lined up to meet as much demand as possible to deliver peak shipments during the peak season. So I feel we’re ready to go and we appreciate the question.
Drew Crum — Stifel, Nicolaus & Co. — Analyst
Thank you.
Operator
Our next question is from the line of Alok Patel with Berenberg. Please proceed with your question.
Alok Patel — Berenberg Capital Markets — Analyst
Hi. Thanks for taking my question. I was wondering if you guys can comment a little bit on some of the price increases that were supposed to be in effect in Q3. How have they materialized versus expectations? And with POS up strong, is there more room to pass on some of the cost to the consumers and the retailers?
Richard S. Stoddart — Interim Chief Executive Officer
Yeah. So the first thing I’d say is, just to remember, right, retailers set the pricing, but we did — those price increases went into effect in August. And so, we’re really seeing the full impact of that pricing in Q4.
So Deb, I don’t know if you have anything to add to that?
Deborah M. Thomas — Executive Vice President and Chief Financial Officer
Yeah. I agree, Rich. I think you hit it on the head. The retailer actually sets the price to the consumer. We don’t. So, we won’t be taking further price increases in 2021. That would be very disruptive to our retail partners, as well as, if you think about the cost of running a company to implement something like that at this point is very difficult, right? So, we want — our retailers have predictability for their season as well. However, they set the ultimate price to the consumer and there’ll be plenty of Hasbro toys and games for the consumer to buy this holiday season.
Alok Patel — Berenberg Capital Markets — Analyst
Got you. Thanks. That’s all I have.
Operator
Thank you. At this time, we’ve reached the end of the question-and-answer session. And I’ll turn the call over to Debbie Hancock for closing remarks.
Debbie Hancock — Senior Vice President, Investor Relations
Thank you, Rob, and thank you, everyone, for joining the call today. The replay will be available on our website in approximately two hours. Additionally, management’s prepared remarks will be posted on our website following this call. Thank you.
Operator
[Operator Closing Remarks]