Hasbro Inc

XMUN:HAS

Thank you, and 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 are referring to earnings per diluted share.

Before we begin, I would like to remind you that during this call and the question-and-answer session that follows, members of Hasbro management may make forward-looking statements concerning management's expectations, goals, objectives and similar matters. There are many factors that could cause actual results or events to differ materially from the anticipated results or other expectations expressed in these forward-looking statements. These factors include those set forth in our annual report on Form 10-K, our most recent 10-Q, in today's press release and in our other public disclosures. We undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call.

I would now like to introduce Chris Cocks. Chris?

Thanks, Fred, and good morning, everyone. Hasbro delivered another strong quarter with record profitability. Revenue grew 15% and adjusted operating profit improved 52%, with growth across all 3 of our segments. Wizards of the Coast momentum continued, driven by the Magic flywheel, and our Consumer Products business posted another quarter of gains. We're increasing our outlook for the year which Gina will walk through in her remarks.

Despite all of the macro noise in the quarter, we stayed true to our superpower, inspiring a lifetime of play. We do that by building deep, lasting fandom around great IP. Magic is the clearest proof point. Magic revenue topped $600 million for the first time, growing 34% versus last year and beating the record we set last quarter. Strength was broad-based across Tentpole releases, backlist and Secret Lair. The Hobbit, which launched in August, is the fourth best-selling set in Magic's history, and it did that with a leaner product lineup. Shipments of Reality Fracture, which debuted in early October, exceeded our expectations. And backlist and Secret Lair are on track for record years.

Looking at Q4, Star Trek, our final set of the year, arrives in November, and early signs are encouraging. It's drawing Star Trek fans who are new to Magic, which is the core thesis behind Universes Beyond. You can see that demand in engagement. Hobbit pre-release participation across our 13,000 Wizards Play Network partners was the highest we've seen for Universes Beyond release, and MagicCon: Atlanta is sold out with badge sales up nearly 30% versus last year. The clearest proof is the player base. Take the first 9 months of 2026 and compare it with all of 2024, our last year without a Tentpole Universes Beyond release. Organized play participants are up more than 40% with 3 months left in the year.

Fans come in through IP they already love, and expanded distribution makes it easier to find us. They stay because deep gameplay, married with best-in-class fan experiences, distinguishes Magic from other trading card games. In 2027, we expect Magic to grow on top of a record 2026. Each of our 6 Tentpole releases next year has a full product suite. We're scaling production capacity to meet demand, and our fan base and retail distribution keep expanding. At New York Comic Con, we announced Marvel Darkhold Destiny. Our prior Marvel sets brought existing storylines into Magic. This one tells an original Marvel story centered on a brand-new character and a companion comic. All 6 sets next year are bangers, and we look forward to telling you more about them in the coming months.

Turning to digital games. At Gamescom, we kicked off hands-on previews for Exodus and confirmed an April 7, 2027 launch date. We're excited to get Exodus in front of players with more demos and announcements in the coming months. Warlock, our D&D action-adventure game, follows in 2027 and was the #1 most wish-listed new game from opening night. We'll share more on both titles before year-end.

Starting this quarter, we're providing additional information on our licensing business, and it's a model we like. It's asset-light, which lets us focus on what we do best while leaning into our partners' capital investments. Hasbro is a top 5 global licensor with more than $17 billion in annual retail sales, and we plan to build on that position across 5 priorities. First, we're building an enterprise-wide franchise system that aligns story, product and retail around key moments. Peppa Pig's Baby Evie initiative is the proof point. Retail sales grew nearly 30%, while we spent 1/3 less on marketing. Second, we're scaling licensed Consumer Products anchored by Peppa Pig, Transformers and My Little Pony and extending into Magic and Dungeons & Dragons.

Third, we're accelerating location-based entertainment, where we're the #1 licensor in the space. Fourth, we're diversifying digital licensing with a pipeline of mobile, PC and console titles. Monopoly Go! shows the asymmetric opportunity when you partner with industry leaders. Fifth, we're using entertainment and music to create fandom that pays off across the portfolio.

What connects all 5 strategies is the same asset-light model, and these businesses generate nearly $700 million in annual revenue across Consumer Products, Digital and Entertainment.

Turning to Consumer Products. Revenue grew 4% to $828 million, in line with our expectations, and our toy and game business delivered its fourth consecutive quarter of growth. Marvel product was the standout with revenues up more than 35%, supported by theatrical releases from our partners at Marvel Studios. We're pleased with the momentum across our entertainment-led brands. Transformers' 40th anniversary has been a great moment for fans as we brought the 1986 film back to theaters on Transformers Day, which coincided with strong retail events. In Marvel, Spider-Man remained strong following Brand New Day, and Power-Charge Spider-Man is featured in multiple holiday gift guides. Doctor Doom product is on shelf ahead of the Avengers: Doomsday debut in December with several items on retailers' top toy lists. We're entering the holidays with momentum, especially in our focused GEM Squared categories, those parts of the toy industry that are gamified, entertainment-driven, multi-purchase and multigenerational.

The third quarter showed what happens when we stay true to our superpower of inspiring a lifetime of play. Magic is deepening its player base and setting records. Licensing extends our brands through great partners who bring their own capital. And our toy and game business has grown 4 quarters in a row. That is a balanced portfolio, and it's the foundation for the outlook Gina will walk through.

Before I turn things over, I want to thank our teams and partners around the world for delivering another great quarter. Gina?

Thanks, Chris, and good morning, everyone. Q3 was our strongest quarter of the year with revenue growth and margin expansion across all 3 segments. Revenue, profit and cash flow each came in ahead of our expectations, and the quarter gives us the confidence to raise our outlook again. Net revenue in the third quarter was $1.6 billion, up 15% year-over-year. Adjusted operating profit was $541 million, plus 52%, with an adjusted operating margin of 33.9%, up 830 basis points on favorable business mix, cost productivity and the benefit of tariff refunds, which I'll detail in a moment. Adjusted earnings per diluted share were $2.90, up 73%, reflecting operating leverage, higher interest income and a lower effective tax rate.

Through the first 9 months, net revenue of $3.7 billion grew 15%. Adjusted operating profit of $1.1 billion grew 35% and adjusted operating margin expanded 440 basis points to 29.7%. Total Hasbro adjusted EBITDA was $605 million in the quarter, up 46%, and $1.27 billion year-to-date, up 29%. Our cost transformation program remains on track, contributing $105 million through the first 9 months against our full year commitment of $150 million. Those savings are doing exactly what we designed them to do, absorbing higher royalties and input costs while funding the investment behind Magic and our 2027 digital game launches.

Turning to the segments. Wizards delivered another exceptional quarter. Segment revenue grew 31% to $747 million, with Magic growing 34% to $616 million behind the release of The Hobbit, Reality Fracture and solid backlist performance. Third quarter results include approximately $40 million of Magic sales that we had expected in the 4th quarter, primarily related to Reality Fracture. Predicting the timing of a set is difficult when a release falls right at the start of the quarter, so this is business as usual. Operating profit grew 46% to $367 million with a 49.2% operating margin, up 520 basis points as volume and mix more than offset higher royalty expense and the step-up in marketing behind our upcoming video game launches. Digital and licensed gaming revenue was $134 million, up 3%, with Monopoly Go! continuing to perform in line with our expectations.

The print operations decisions we discussed last quarter continue to pay off. Increasing initial print and distribution runs has given us the capacity to meet demand at launch, reduce costs and plan our manufacturing network more efficiently. Across premier sets, Universes Beyond, Commander Decks and Secret Lair, we are producing more products than at any point in the brand's history, and sell-through is confirming the demand is there to support it. Through 9 months, Magic revenue of $1.6 billion is up 34%, and the ecosystem remains healthy across both new releases and backlist.

Consumer Products delivered the margin inflection we have been working towards. Revenue grew 4% to $828 million with growth across almost all of our markets. Adjusted operating profit doubled to $178 million, inclusive of approximately $48 million of tariff refunds with an adjusted operating margin of 21.5% compared to 11.2% last year. The underlying improvement is a durable part of the story, and it is broad-based. Supply chain productivity, lower distribution costs, disciplined operating expense and favorable business mix was more than able to offset higher input costs. Through the third quarter, CP revenue of $1.7 billion has grown 3%, and adjusted operating margins of 7.7% have grown 410 basis points, including the one-time tariff refund recognized in Q3.

We also entered the holiday season in good shape operationally. Owned inventory ended the quarter at $359 million, down 10% versus last year. And both owned and retail inventory are clean and well positioned against the seasonal build and the upcoming entertainment slate. The broader operating environment remains dynamic, and our teams continue to manage it well. The oil-related input costs we flagged earlier in the year are now flowing through the P&L, and the mitigation playbook we built is helping to offset that pressure. On tariffs, the refunds recognized this quarter relate to prior year duties, and we have updated our guidance to incorporate the lower China tariff rate of 12.5%.

With greater stability in the trade environment, we are taking a more measured and flexible approach to our sourcing footprint, balancing cost, speed and resilience across our network. And we remain focused on exiting the year with a dependable supply base and clean inventory on both sides of the shelf. Entertainment segment revenue was $20 million, up 9%, and adjusted operating profit of $18 million contributed at a 91.1% margin, driven by favorable mix and deal timing.

Beginning this quarter, we are reporting licensing revenue as a separate line on the P&L. This disclosure puts together the licensing revenue for Digital Gaming, including Monopoly Go!, as well as our licensed Consumer Products business. At roughly 11% of year-to-date revenue, it is a meaningful and capital-light contributor that spans the entire portfolio, and we believe the added transparency provides better visibility into our primary revenue streams.

Total licensing revenue was $144 million in the quarter and $417 million year-to-date, which is down 4%, primarily due to $26 million of non-recurring items across several licensing agreements in the prior year as well as tough Kayou My Little Pony trading cards compares.

From a balance sheet and cash flow perspective, through the first 9 months, we generated $907 million in operating cash flow, up 85% versus last year on earnings growth and improved working capital. We ended the quarter with $851 million of cash and $576 million of short-term investments, which are match dated against our November 2026 maturity. We contributed $226 million toward debt reduction and returned $445 million to shareholders through dividends and share repurchases.

Turning to our full year outlook. We are raising guidance for the year. We now expect consolidated revenue to grow 7% to 9% year-over-year on a constant currency basis and adjusted EBITDA to be in the range of $1.575 billion to $1.625 billion. At the segment level, Wizards is now expected to grow revenue between 16% to 18%, with operating margins of approximately 44% to 45%. From a phasing standpoint, the fourth quarter carries a step-up in royalties as well as approximately $15 million of marketing spend behind the video game launches. Also note that the approximately $40 million of Reality Fracture and backlist revenue pre-ships recognized in the third quarter shifts out of our fourth quarter expectations.

For Consumer Products, we continue to expect revenue to grow 1% to 3% for the year, with an increase in adjusted operating margin to 8% to 10%, including the benefit from the tariff refunds. The fourth quarter margin will step down sequentially from Q3 as the tariff refund benefit was completely recognized in Q3 and Q4 carries a heavier promotional and shipping mix. Entertainment segment revenue is now expected to grow 3% to 5% with operating margins of approximately 65%.

On capital allocation, our priorities are unchanged, but our capacity has grown. First, we continue to invest in the business 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. Third, based on the continued strength of our cash flow, we are again increasing our share repurchase target for the year from $200 million to $400 million. We have repurchased $149 million through the first 9 months and expect to be active through the balance of the year. And finally, we remain firmly committed to our dividend. As part of today's release, the Board has authorized the fourth quarter dividend.

A few words on how we're thinking about next year. While we're not giving 2027 guidance today, directionally, the setup is a good one. Wizards enters the year with a deeper release pipeline and a supply chain that can support it. And we expect, over time, this segment to continue operating at a healthy margin profile in the high 30s and low 40% range. With two video games scheduled for next year, Exodus and Warlock, we expect the noncash amortization to result in 2027 margins in the high 30s range. As a reminder, amortization will show up as a depreciation charge within our cost of goods, and it will not be added back to adjusted EBITDA. It will be broken out separately on our cash flow statement, making it easy to identify and add it back in operating cash flow.

In Consumer Products, the productivity and mix work we completed this year carries forward, and we expect to build off a structurally cleaner cost base. And as previously noted, 2026 is the peak investment year for Digital Gaming, which means the spending curve begins to work in our favor from here.

As we wrap up, Q3 was a quarter of execution. Wizards is scaling profitably and doing it at a size that was not possible 2 years ago. Consumer Products has delivered 4 quarters of revenue growth and has turned the corner on margin with the underlying improvement holding up even before the tariff recovery. And our cost discipline is funding the investments that will drive 2027 and beyond. We are raising our outlook with confidence, and we remain focused on closing the year from a position of strength.

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

Sure thing. Stephen, thanks for the question. Well, I would say what outperformed in Q3 for Magic, everything. Reality Fracture is one of the best-performing premier sets we've ever done. The Hobbit, despite being a much smaller product release in terms of the total number of SKUs, performed like a premier set release with a lot more Commander Decks and supplementary SKUs associated with it. And backlist continues to impress with its total number of sales.

And I think it's a combination of 3 or 4 things. First and foremost, it's new player growth and player engagement. The Hobbit prerelease was one of the biggest we've ever had. Our total number of players who are engaged in in-store play, which is probably our best kind of proxy for actual engagement, is at record. Players are happy with the sets, giving us great feedback, repurchasing, and investing behind them. Our distribution is up. Our distribution is up over 40% in mass, over 30% in our WPN. It's broad-based. It's both North America as well as Europe and Southeast Asia.

And just in general, I think we're seeing some great kind of category tailwinds as well. Magic is performing well, but the overall category is seeing a boom, and that's just consistent with our overall thesis on what categories are going to perform, which we call GEM Squared, which is those categories that are gamified, entertainment-driven, multi-purchase and multigenerational. And I think trading cards over the last year have emerged as the #1 category in toys and games. I think they're actually bigger than building blocks now. And we see that as a generational structural shift and not just as kind of like a onetime thing.

Can I add one more fun fact? I thought you'd say this fun fact. But Chris mentioned backlist. Through these first few weeks here in the fourth quarter, our backlist contribution in 2026 year-to-date through these first couple of weeks of the fourth quarter has already surpassed what we saw in 2025. So to the point of like all of the engines are continuing to hum. We've got momentum across our frontlist. We've got momentum across the backlist. And that's going to continue as we move into next year.

And I suppose I'll make it real on one practical item. So The Hobbit, much smaller release in terms of SKUs versus The Lord of the Rings. The Hobbit is going to do about and maybe even more lifetime than The Lord of the Rings will do, despite it being a smaller release. It's certainly done that to date. We would typically expect something like The Hobbit to do 50% to 100%, 50% less than what a comparable more full-featured release to do. And that's a factor of player growth, player growth, and the ability to be able to access product. And so we see that moving forward. I think the second part of your question was what gives us confidence in 2027 and beyond, it's all those factors.

So fourth quarter, Magic will likely be down, but a big part of that is we had some sales that happened earlier this quarter -- or sorry, that happened this quarter that should have happened early next quarter because our supply chain was able to deliver a bit earlier and the channel wanted it. And we have some product in next quarter that we shifted into Q1. So minus those shifts, Magic would have had another growth quarter in the high single digits, low double digits for Q4. Now it will probably be down, call it, low single digits, mid-single digits. But barring that, it would have been up around 8% to 10%. And so instead, you're going to see a big growth like you had a 30% plus in Q3. You'll have a modest kind of decline in Q4, and then you're going to see another big spike in Q1, and we expect the momentum to carry forward in 2027 with continued growth on the back of all those factors.

Yes, you totally captured it, James. I think the bottom line on Wizards is we manage the game for the fans and not for quarterly results. Like that should be an expectation moving forward. We're going to pace the sets based on the logical pacing, especially as we do more kind of IP collaborations, and we're working with outside companies to make sure that we make the biggest moments possible.

And I think the honest answer also is, we're chasing demand. Like we're going to be opportunistic about when we supply. Our supply chain team is doing a great job. They're helping like chase one of the hottest categories in toys and games. And those 2 factors, occasionally, we're going to have a quarter that's down modestly. But I think you can count on the fact that that's not a demand signal. That's just the timing of when we ship and the timing of when we have product available, and a factor of when we chose to make a product available based off of the best possible time for our channel partners and for our fans.

Yes, the add I'd have, kind of, quantitatively, when we were sitting in July doing earnings and looking at our Wizards back half, we had thought that it would be up collectively, call it, low single digits. Now we're going to exit the year with a back half that is, call it, high single digits, low double-digit rates. So the overall improvement or kind of momentum of Wizards is continuing.

To Chris' point, like there are things that can shift meaningful revenue as we're seeing, like one week can make a difference, a meaningful difference in the quarter. And I think you've got that compounding factor of just when we're launching our first set in '27 and now Reality Fracture of how much was shipped that first week that just take Q4 down, but the overall back half is well ahead of our expectations.

Yes. We were staring at the same math ourselves as we were prepping, and we knew that was going to be the top -- one of the top questions.

So did we answer both your questions?

Sure, sure. Good question. I mean, obviously, this year, the volume growth that we're seeing on the business kicks off a favorable tailwind on leverage, so that you see that showing up in our '26 margins. And as we look forward to '27, as we've talked about, we expect the Wizards business to grow. We expect that to be, call it, mid- to high single digits in that range. But we're not going to plan for that business to grow at the double-digit rate that we're guiding to now. So there's a little bit more leverage that kicks off in '26 that we'll see some leverage next year, just not as great.

But to your point, the single biggest thing that will weigh on our margins next year that will keep it in the high 30s is that amortization expense. That will flow through for both games. And remember, as we've talked about Exodus, now we have the launch date of Exodus being April 7. And the first 3 months, we'll see the majority of that amortization flow through. So it will be a Q2 event where we'll see most of that -- or I would say, 65% of that cost come through, 85% of the depreciation hits within the first 12 months. So we'll then pick up some, too, of Exodus as we go through the balance of the year and then we get -- we've got Warlock that's coming kind of in the back half.

So that's probably the single biggest atypical thing in '27 that will weigh on margins. Everything else, it puts and takes. We're going to -- royalty expense might be a little bit heavier just given our UB set releases, but that's within the realm of reason. We'll have puts and takes within operating expenses. We'll continue to expect cost productivity to offset inflation. It's really the amortization expense.

Yes, for sure. I think the best proxy for that is backlist sales. And as Gina mentioned, we already have sold more backlist this year than we did all of last year. That continues to grow at a rate as impressive as our frontlist is growing, backlist is actually growing faster. And I think that's a factor of we're bringing new players in, especially on things like Universes Beyond, some Marvel fans, Avatar fans, Turtle fans, soon Star Trek fans. And they decide that they really like this game. And then they go and buy more sets and not just the Star Trek set, they go and buy a Reality Fracture. They'll go buy Nauctis, which is our first set -- our first premier set next year, and they become Magic fans and they stick around like a Magic fan and behave like a Magic fan, which is usually a 5- to 7-year period of time where they play the game actively. And occasionally, they'll put the game down for maybe a year or 2 because they have a life stage, but then they come back.

So Magic is a really special game. It's one that we don't measure retention in days and months. We really measure it in the years and generations, and the new fans that we're attracting are just as engaged and just as valuable as the more traditional fans that we've had over a 35-year history.

And maybe one other fun fact. When you look at our backlist sales -- sorry, for this last quarter, to Chris' point of like the people coming in, playing the game and sticking, our largest sets that sold for backlist in terms of distribution were Foundations, Final Fantasy and, believe it or not, The Lord of the Rings. And that was our -- The Lord of the Rings, for those newer to the story, that was our very first Universes Beyond set that we did. Is that '23? '23.

Yes. Sorry, you had a question 2?

You had 2 questions. Yes, we're excited about that.

Gina's comment on mid- to high single digits was Magic, not Wizards. So we expect Magic to continue to grow at pace.

Sure. I think you should expect, as long as the hobby is growing and there's vitality in the player base, I think you should expect new player -- new store growth to follow new player growth. In through third quarter of 2026, we've seen about a 38% growth rate in the number of WPN stores. We have over 13,000 now. On mass, we've seen about a 28% growth rate on the number of stores, like Magic is available now in close to 40,000 doors. And that's just a testament of more people were buying Magic and more people are buying in the category and more retailers want to be part of that story, whether it's a GameStop or a Walmart, or Carrefour or a Smyths, or a Mox Boarding House style, we see a lot of upside there. And there's many more hobby shops and game cafes and board game cafes than 13,000 around the world. Those are just the ones that qualify into the Wizards Play Network today and many, many more of them ask us to become part of that because they see the benefits of being part of our engagement loop and part of our reward cycle.

Yes. Yes, you're calculating that correctly. And overall, as we look at Consumer Products, again, looking at the back half of the year, we expect the back half to be up low single digits. I believe that means our Q4 will be flattish, maybe slightly positive. Another similar story like Wizards, where we had a pretty big comp last year because of all of the goofiness on tariffs and shelf set timing changing, replan orders were stronger in the fourth quarter last year. So overall, our back half is really strong as the retailers have moved to kind of more normal shelf set timing and shipping patterns, but there is a little bit of comp noise in our Q4 for CP as well.

Yes, we -- thank you for the question. We typically don't provide those levels of splits. Suffice it to say, just given kind of how our frontlist is stacked, the majority of our revenue comes from the frontlist. The growth rates, as Chris was saying, like the growth rate on backlist has been pretty strong, our growth rate on Secret Lair, but the majority of the revenue is going to come from that frontlist.

Yes. We're continuing to see a pretty resilient consumer, especially given how we've shifted our portfolio and our portfolio mix to those GEM Squared categories, we're definitely seeing momentum there. So there's nothing that we see going into the holidays that has us concerned about the consumer.

Well, I think a couple of things. Darkhold Destiny should be pretty cool. It's an original storyline. There'll be an original character. I think it really represents how we want to work with partners. We want to represent their IP authentically. And ideally, we'd like to make them really a part of Magic. And I think this is a great example of it. I think fans will be excited by it. It will -- like there's been some jokes a little bit in the fan community about how New York was one of our most frequent settings for Magic sets over the last year or 2. And I think this kind of brings Magic into superheroes and Marvel style action and characters and storytelling, which should be fun.

I think an important thing that you and all of the analysts should also be thinking about is the composition of the sets. So this year and for the last couple of years, we've had sets that have had Commander Decks in them, some sets that haven't had Commander Decks in them, some sets that have had a full suite of collectible products, some sets that have had a more limited suite of collectible products. Next year, each of our 6 major sets will be full sets. They'll have all the Commander Decks and all the collectible products associated with them. And then as I mentioned, we see upwards of a 50% or even greater difference in sales per set when you have that full product suite. And so that's something I think you need to factor in as well.

We haven't shared all the details about all the sets next year. There's a couple secret ones in the back half of the year that we think our fans will be pretty excited by. I think needless to say, we feel like all of them are going to be super high quality, really great IP, and we've had great partnerships with each.

Well, I think the biggest thing that we're looking for is kind of wish list and preorder activity. And on wish lists so far, so good, it's approaching 1 million wish lists, which based on what we're benchmarking from other releases over the last couple of years, that's benchmarking pretty favorably. We're going to have a big December. Actually, we're going to have a big couple of months about new news associated with the game, but in particular, we're going to have some major news on the game in December, and we'll be watching those metrics very, very carefully as we kind of head into the end of the year and shape our thinking about what we expect it to do commercially when it launches in April.

POS, overall, for us, in the quarter was, call it, up low single digits overall. I think that includes when I'm saying that, that's just toy and game, yes. Yes. And the trading cards would have been kind of up high single digits, low double digits numbers. Yes. There's a little bit of a timing lag of when we're doing this call, and we'll see final September results, those come in actually today. So maybe when we talk later on today, Gerrick, we'll have some more additional information.

But overall, categories were performing. I think most notably, we should look at how our GEM Squared categories are performing year-to-date and those are up almost 14%. So again, when you think about our strategy and how we're shifting our portfolio mix to have those categories growing at a kind of low double-digit pace, that's a good thing for us.

Gerrick, we use distribution quite extensively for both channels. We do direct for some. But I would say the vast, vast, vast majority of what we do is through distribution. And the margins are pretty comparable between distribution and direct for us. We've got a lot of good partnerships usually in a given territory, like in the U.S., I think we have somewhere in the neighborhood of 6 to 8 major distributors in Europe. I think we have a bit less, but it's still like 3 or 4.

We want to make sure a hobby shop has a choice and can get fulfilled real time. Usually, our typical hobby shop gets fulfilled in an order in 24 to 48 hours from when they ship it. And usually, our distributors will take products anywhere from -- on the low side, 2 weeks, on the high side, 6 weeks before a major release. And really, that just has to do with the composition of when the product is ready, when we can ship it out and how complex the release looks like.

I think our Consumer Products division inside of the midterm can do better than low single digits. If you look at just like the new licenses that we have for 2027 alone, we'll start shipping Harry Potter at the very tail end of this year. I think the series debuts in the Christmas time frame. Then we'll follow that up with a full line in Q1 and Q2. We'll have The Legend of Zelda, which is a brand-new license for us. We'll have 3 quarters of KPop Demon Hunters that effectively have had no comp.

And then you're going to have another stacked movie lineup next year. You're going to have a new Spider-Man movie, you're going to have another Avengers film, Star Wars 50th anniversary, The Legend of Zelda movie, the new Harry Potter series, which I got -- I was lucky enough to do a tour of the set, and it was magical, like, no pun intended. I think all of those combined really sets up for a healthy 2027. And frankly, it's pretty favorable for 2028.

And then from a margin perspective, as we drive incremental upside in terms of the top line, you just get some favorable leverage from that. And then I think our CP team has done a good job with managing their costs and getting that to something that we think is a lot more competitive. So I feel like we can get CP margins. My goal is to get it into the double digits and make it be really resilient in that midterm time frame, which is consistent with the guidance that we've given you guys.

Got it. Yes, the commentary specifically was on our digital CapEx coming down. And I believe we said last quarter, by 2028, those development costs will be down 20% to 25%. To your point, since we've been capitalizing that, that will come directly out of that $225 million pool of dollars that we were using. And in short, yes, as that cash flow frees up, it gives us flexibility to either reinvest back into the business to fund more towards share repurchases or to continue to buy back debt.