Deborah M. Thomas
Executive Vice President and Chief Financial Officer at Hasbro
Thank you, Chris and good morning, everyone. Our second quarter results have us on track to achieve our full-year guidance, including a low single-digit revenue growth in constant currency, operating margin expansion to 16% and operating cash flow at the low end of the $700 million to $800 million range. For the second quarter, the team delivered revenue growth, margin expansion and $1.15 in adjusted earnings per share, while returning $221 million to shareholders through our quarterly dividend and share repurchases, and adding an important growth engine to both our gaming business and our direct-to-fan capabilities with the acquisition of D&D Beyond.
Importantly, we proactively managed our supply chain and inventory purchases to mitigate disruption. We are much better positioned to meet demand this year versus last. This action resulted in higher-than-typical inventory levels at Hasbro for this time of the year. To avoid the out-of-stock positions of the last year holiday season due to supply chain disruptions, retailers also shifted some consumer product direct shipments into the second quarter from the third quarter. Both our inventory and that at retail is of extremely high quality.
We have product to meet demand, including significant new releases in MAGIC: THE GATHERING and in our toy and game business. Based on our plan to drive point of sale growth in the second half of the year, we believe we will end the year with inventory levels similar to year-end 2021. While product and freight costs are up, we are beginning to see a reduction in port congestion delays and lead times have come down, although they remain 2 times higher than historical levels. We also have begun to see the offset to higher input and freight costs from pricing increases in our CP business that went into effect in the second quarter and will be increasingly impactful in the third and fourth quarters. Price increases also went into effect at the beginning of July for select MAGIC: THE GATHERING sets and will begin to be reflected in results in the third quarter.
As Chris spoke to, we are managing costs and finding efficiencies in our business, leaning into the theme of focus and scale. We have already begun to identify and see some of this work reflect favorably in our results. In the quarter, we more than offset the 230 basis point decline in gross margin with lower and more efficient spending. This included a 170 basis point decline in advertising to revenue, primarily from lower spending on digital gaming launches and no longer supporting the music business sold in 2021. Adjusted SD&A to revenue reflects a 180 basis point reduction driven by
Lower compensation and depreciation as well as the sale of the music business. This was partially offset by higher costs associated with our annual meeting. Intangible amortization includes an incremental $900,000 from the acquisition of D&D Beyond. We anticipate $4.7 million this year and $7.5 million next year in amortization expense associated with the acquisition. Adjusted operating profit grew 14%, driving 200 basis points of margin expansion to 18.0% of revenue.
Below operating profit, interest expense declined $4.5 million as we progress toward achieving our debt to adjusted EBITDA target of 2 times to 2.5 times in the second half of next year, if not sooner. The underlying adjusted tax rate, excluding discrete items, was 21.6% versus 23.2% last year, and
We expect the full-year rate in a range of 20.5% to 21.5%. Looking at our segments, Wizards of the Coast and Digital Gaming revenues were up 5% absent FX. This was led by a 15% increase in tabletop revenues. Digital gaming revenues were down 36%, as planned, reflecting the year-over-year comparison to the 2021 digital gaming launches of Dark Alliance and Magic: The Gathering Arena on mobile. Total MAGIC: THE GATHERING revenues grew 11%. Operating profit in the segment increased 17% to 53.7% of revenue. We continue to invest to grow Wizards for the long-term, including in digital gaming and talent.
Cost of sales increased behind higher paper and freight costs, and we continue to pre-purchase paper stock to help meet our printing needs for future set releases. Operating margin improvement reflected both revenue growth and lower costs from digital gaming launches in depreciation and advertising, as well as lower compensation accruals this year versus last. The team remains on track to deliver high single-digit to low double-digit revenue growth for the year and operating margins that are down from last year but remaining above 40%.
Consumer Products revenue grew 9% absent FX. In constant currency, North America revenues were up 11%, Europe was flat, Latin America revenues were up 38% and Asia Pacific was up 1%. Of the $19.1 million negative impact from foreign exchange in the segment, $14.9 million of it was
In Europe. For the first time in 20 years, the Euro and the U.S. dollar are now at parity and the Euro is our largest international currency. If we look at the back half of our year, we expect this to have an additional negative impact to CP revenue of $30 million to $40 million versus our expectations as we entered the year. Given hedges we have in place, we expect less of an impact to operating profit. The other item impacting results is Russia. For the full year 2021, our revenue in Russia was $115 million, with approximately 70% earned in the second half of the year. We will not have this revenue and associated operating profit in 2022.
From a brand perspective, each brand portfolio category in the segment, Franchise Brands, Partner Brands, Hasbro Gaming and Emerging Brands were up in the quarter. Our products for Marvel are on track for another tremendous year, with strong growth in the quarter and year-to-date. New entertainment releases and innovation are driving this business. PLAY-DOH, PEPPA PIG, POWER RANGERS, PJ MASKS, MY LITTLE PONY and Hasbro Gaming titles were among the Hasbro brands driving quarter growth. Higher product and freight costs were partially offset by price increases taken at the beginning of the quarter. Adjusted operating profit was $3.1 million, down $14.7 million, reflecting these higher costs as pricing will phase in during the coming quarters. Our full-year view for CP remains low single-digit revenue growth in constant currency, with operating margins flat to up slightly from last year's 10.1%.
Entertainment segment revenues reflect the 2021 sale of the music business and timing of deliveries. Segment revenue absent music declined 4% and our view for growth in the year remains unchanged. Our Film and TV business was down 10% as deliveries shifted between quarters and Family Brands revenue was down slightly absent FX. With the lower deliveries, program amortization declined and the mix of revenue was favorable. Adjusted operating profit increased more than 100% to $23.0 million, or 12.4% of revenues. For the full year, we continue to expect revenue growth in mid-single digits and operating profit margin expansion from 8.0%, both absent the music business sold last year.
As you think about the full year, the third quarter is the most difficult comparison for our business. Retailers placed more direct import orders in Q2 of this year than planned, about $60 million more of CP revenue. In Wizards, we are up against a more difficult release slate and could see a flat to slightly down quarter as we have discussed with you previously. And entertainment delivery timing is unfavorable in the third quarter, including comparisons to several film releases to streaming platforms last year, including My Little Pony: A New Generation, Finch and Come From Away, and a heavier slate of scripted TV deliveries in Q4 this year versus Q3 last year. We also expect many retailers to return to a more traditional promotional calendar with more holiday activations in the fourth quarter.
Our cash balance was $628.2 million, compared to $1.2 billion in last year's second quarter. During the quarter, we spent $146.3 million for a highly strategic acquisition, $97.4 million in dividends, and we resumed share repurchase to the total of $124 million. We have paid down $50 million this year in debt, and remain committed to investments in talent, innovation and key strategic initiatives. Our operating cash flows for the first half of the year were $147.8 million and continue to reflect the advanced inventory purchasing I spoke to earlier. DSOs were flat with last year at 59 days. Our expectation is that inventory will end the year around last year's levels, and that we will generate operating cash flow toward the low end of our targeted range. Our plan continues to have us returning to approximately $1 billion in operating cash flow next year.
As we head into the second half of the year, we are in a strong position to meet demand and to deliver the year. While economic conditions are challenging, we took that into account in our full-year plan and our businesses, toys, games, including MAGIC, and content are historically very resilient during down economic periods. Importantly, we have made significant progress in our strategic review. We look forward to speaking with you during the coming weeks and seeing many of you in New York on October 4th for our Investor Day.
We are now happy to take your questions.