Business Breakdowns
· Matt Reustle, Todd Wenning
[00:00:00] S0: You gave us some sense of the revenue breakout with retail and trade. I'd be curious what the other 20% is, so maybe we could start off there. [00:00:00] S1: Of the other 20%, 15% comes from online and 5% from licensing. The online can just be people who order from warhammer.com. It can be the subscriptions that I talked about earlier. I think they do – my estimate is that their annual run rate on that number of subscribers is about 12 million pounds. It's rising, but still a small part of their business. And then the licensing business is the remaining 5%. And that can be cyclical. They might have a big licensing deal come in with a video game. So if you go onto the Switch marketplace or a PlayStation, you'll be able to see Warhammer games. And so they license their IP to the video game producers. That business is really high margin. So it's well over 90% in a typical year. 90-95% is what I have in mind. As a firm, their gross margins are about 70%. It is almost like a luxury product when you think about those margins. And they have significant pricing power. So if you think about their retail stores, my guess is they do about 80-85% gross margins in those stores where they control the process. Online is probably similar. Their cost there being logistics and distribution. And with trade, I think their gross margins – my guess, they don’t disclose this, but it's probably 50-55% or thereabouts when they sell to a wholesaler. So, it's a very strong model from an economic standpoint. Their EBITDA margins are over 40%. It's a very cash generative business.
· Matt Reustle
[00:00:00] S0: The licensing point. I still remember reading – there's all this lore about Ralph Lauren, but if you go back into the early biographies, it was a failing business, really. Under a lot of stress until he licensed a fragrance. And that was a huge profit driver and cash generator. It always made licensing in my head a completely different concept. But nonetheless, even if that sits atop the chain, 50%, 70% gross margins are quite impressive. On those buckets, would you point to any single bucket being a large growth driver going forward? As you think about expansion, D.C. store, seems like that can make a big leap into the US. And having a Prime show. Seems like they're doing things with the IP that are sensible from both an attention and awareness standpoint. But what would you point to just kind of from a growth perspective?
· Todd Wenning
[00:00:00] S1: So if we think about the network effects that I mentioned, with the TV show coming out, I think it'll appeal to a lot of people who have never even heard of Warhammer. They might go check out their local store. All of a sudden, you’ve got a new node in the network. They introduce their friends and so on and so forth. If you look at what's happened with the Mario movie, for example. When the Mario movie came out, Nintendo management said we were surprised. We had high expectations, but we were surprised by even how much that drove what we wanted them to do, which was buy Nintendo video games. And when The Witcher, which is also starring Henry Cavill, back on Netflix, came out; that was sort of a stagnant video game series, and the sales went through the roof. People, they see IP, whether it's Lord of the Rings or whatever, and they want to continue to engage with that IP. They want to stay with it. My investment thesis is that this will lead to stronger sales in the higher margin categories. It'll certainly drive interest in trade. People might go to a hobby store instead of knowing there's a Warhammer nearby, or maybe they don't have a Warhammer nearby, and they go to the hobby store, in which case it's lower gross margin. But I think that will increase some of the licensing revenue that they have, which is 90% gross margin. The online business, which I think is 80-85% gross margin and certainly drive traffic into the Warhammer stores, which is again, about 80-85%. And that's where management wants you to start your experience – in a Warhammer store. When I went to go buy my Warhammer starter kit, Warhammer 40,000 to be specific, I walk in with my kids and there's probably six or seven 30-year-old men sitting around tables playing this game. They all kind of look up at me to see like, hey, is this guy one of us? I started asking questions, and they were talking to my kids. And I think it's just a great way to get a feel for what Warhammer is, what they offer, how the game is played, what sort of social events are around it. It's a great introduction to the experience and to the community.
· Matt Reustle, Todd Wenning
[00:00:00] S0: It's a very interesting thing that we're starting to see more of. You mentioned the Mario movie, which I can tell you is the first movie I got my son to watch in full. That meant something to me in terms of the nostalgia of playing the game growing up. But also, on another extreme, F1, Drive to Survive, and I think a lot of people are trying to use that as a blueprint. So you can see how that drives additional interest and entryways, potentially for a certain type of buyer as well. So that's quite interesting. On the licensing, I'm just curious, you mentioned it can fluctuate quite a bit. How does that work? Is it just the sense of, if you're licensing a video game, you're going to have that initial bump in year one. But until you release a new game, you're going to have that natural decline curve? [00:00:00] S1: Most of their licensing historically has come from the video game partnerships. And so it depends on when consoles are launched, when games are developed, and so it can be a little lumpy. When it hits, it goes right to the bottom line pretty much. There's very little operating expense related to that. It really just falls to the bottom line. So I'm thinking that as the movie comes out, that will lead to more licensing deals, whether directly from Amazon or from new partners and video games, et cetera. So I think that will remain a very cash generative part of the business for a long time.
· Todd Wenning, Matt Reustle
[00:00:00] S1: Most of their licensing historically has come from the video game partnerships. And so it depends on when consoles are launched, when games are developed, and so it can be a little lumpy. When it hits, it goes right to the bottom line pretty much. There's very little operating expense related to that. It really just falls to the bottom line. So I'm thinking that as the movie comes out, that will lead to more licensing deals, whether directly from Amazon or from new partners and video games, et cetera. So I think that will remain a very cash generative part of the business for a long time. [00:00:00] S0: Just in terms of being UK operated, did the tariff volatility end up impacting them at all? And it's just one of those questions that comes to mind, as you mentioned, origin and having that strong footprint there in the UK. How caught up in all of that activity did it get? And how much does it actually impact the business?
· Matt Reustle, Todd Wenning
[00:00:00] S0: Just in terms of being UK operated, did the tariff volatility end up impacting them at all? And it's just one of those questions that comes to mind, as you mentioned, origin and having that strong footprint there in the UK. How caught up in all of that activity did it get? And how much does it actually impact the business? [00:00:00] S1: So that was some of the concern earlier in 2025. The stock sold off or was stagnant a little bit. The concern was that management said after their annual report came out, they work on a different schedule in terms of their reporting schedule. But when the May report came out, they said we're concerned about tariffs and what the impact might be to our gross margins. And then the stock had a nice jump, a couple of weeks ago because they said in their November report that it didn't impact us as much as we expected. And then we saw this week, so we're talking on January 22nd, we saw when there were concerns about new tariffs, the stock sold off a little bit again. They are impacted by it. But again, this is why the vertical integration helps quite a bit. Not only does it help protect them from IP theft, which is one of their biggest concerns, but also it helps them control their supply and they have complete control of their supply at all times. [00:00:00] S0: You mentioned those gross margins, which to me feel very impressive. Is there any way to contextualize that versus peers? I don't know if there are others that are public that you can compare it to, but I'm curious about that.