孩之寶 (HAS) 2004 Q1 法說會逐字稿

Good morning, and welcome to Hasbro's First Quarter Earnings Conference Call.

This is the operator, and at this time, I would like to inform all parties that you are in a listen-only mode until we open for questions and answers.

Also this call is being recorded.

At this time, I would like to turn the call over with us today from the company is the Senior Vice President of Investor Relations Miss Karen Warren and thank you, ma'am, you may begin.

Thank you Kathy, and good morning everyone.

Thank you for joining us.

With me this morning are Al Verrecchia, President and Chief Executive Officer, and David Hargreaves, Senior Vice President and Chief Financial Officer.

To better understand the earnings results, it would be helpful to the the press release and financial tables available that we issued earlier today.

Press release includes information regarding non-GAAP financial measures discussed on today's call.

If you don't have a copy of the release, it is available on our website at www.hasbro.com.

On the call this morning, you will hear opening remarks from Al, followed by a review of the financial results by David.

We will then open the call to your questions.

Before we begin our formal remarks let me note that members of Hasbro management may make forward looking statements concerning management's expectations, goals, objectives, and similar matters, which are subject to risks and uncertainties.

There are many factors that could cause actual results and experience to differ materially from the anticipated results or other expectations expressed in the forward-looking statements.

Some of those factors are set forth in the company's annual report on form 10-K, including under the heading Forward Looking Information and Risk Factors That May Affect Future Results, and the company's quarterly reports on form 10-Q, including under the headings Other Information and Forward Looking Statements and Factors That May Affect Future Results, and the Company's Current Reports on form 8-K, and in today's press release.

All listeners should review such factors together with any forward-looking statements made in this conference call.

The company undertakes no obligation to make any revisions to the forward-looking statements contained in this conference call, or to update them to reflect events or circumstances occurring after the date of this conference call.

Now I would like to introduce Al Verrecchia.

Al?

Thank you, Karen, and good morning everyone.

Thank you for joining us.

Let me start by saying we are pleased with the progress we made during the first quarter given the uncertain retail environment.

Looking at our performance, revenues were up 2.7%.

We continue to improve earnings, strengthen our balance sheet, and increase our dividend.

Core brand drivers were up 24% world wide, with Magic: the Gathering, Transformers, Monopoly, Playskool, and My Little Pony all up significantly.

We also had continuing momentum from a number of other brands including FurReal Friends and BeyBlades, although BeyBlade was down from a year ago.

In addition we had a number of successful new product launches in the quarter.

While it's not possible to highlight all of them on the call, I would like to discuss a few, including the Duel Masters Trading Card Game, the European debut of the 20th Anniversary edition of Trivial Pursuit, and Secret Central.

As in the past, the majority of our new products are coming in the second half of the year.

Let's start with Duel Masters which was launched in the first week of March.

We've had a very strong side at retail, and it was a key contributor to our year over year performance for the games segment.

There's an animated series of Cartoon Network supporting Duel Masters and we will be introducing a line of action figures, games and puzzles for the fall.

In addition, our Hasbro properties group has signed up a number of licensees, so you can expect to see Duel Masters in apparel, publishing, video games and other lifestyle products.

We've had a very successful launch of the Trivial Pursuit 20th Anniversary Edition in the UK, and will be shipping into additional European markets by mid-year.

TP20, has been a huge success in the U.S. for the past two years, and we expect to have similar success in our international markets.

Secret Central, our new entry into the very competitive mini doll category, is off to a good start, although it's still early.

To date we've had over a million unique visitors to our website since it was launched in early December.

What we're finding is that girls are really interested in the story, and the power of being in the know is very relevant to them.

Initial sales for retail is on plan, and we remain excited about the potential of this brand.

Before I hand the call over to David, I want to spend a couple of minutes talking abut to the retail environment.

Most U.S. retailers have reported solid comp store increases over the last couple of months, with toys and games performing well.

Hasbro's retail takeaway has been consistent with these results.

All of this data is clearly a positive in terms of consumer interest and demand.

However, in looking at our first quarter, orders from retailers did not keep pace with our retail takeaway.

Consumers were buying products but the retailers were not restocking at the same rate.

Put another way, retailers are focused on reducing inventory, and are continuing to emphasize supply chain management.

One analyst recently described it best when he said getting an order out of some of the retailers now was like pulling teeth.

Add to this the stores closing by KB's restructuring, and the yet to be determined outcome of Toys R Us' strategic evaluation of their business, and you can see it has created a fair amount of uncertainty at retail.

While it's difficult to know how the changes are going to play out, we believe our remaining focus on our own strategy for success, we can best serve Hasbro and it's shareholders.

This means continuing to drive innovation as we grow our own core brands and bring new products to market such as Duel Masters and the next generation of both FurReal Friends and Video Now.

As I look to the rest of the year, despite this uncertainty at retail we remain on track to achieve our full year goals and objectives.

We have a great lineup of products and we are confident in our ability to grow revenue and earnings again this year.

But as we indicated in February, we expect most of the growth to come in the back half of the year.

Let me now turn the call over to David who will review the quarter in more detail, and then we'll go directly to your questions once David has finished his remarks.

David?

Thanks Al, and good morning everyone.

Given the current retail environment, I am very pleased with the results we delivered in the first quarter.

First quarter world wide net revenues were $474.2 million, up 2.7% compared to $461.8 million last year.

These results included a $21 million positive impact from foreign exchange, and an $8 million decline in revenue related to a closing of the Wizards of the Coast retail stores.

Overall, the business performed well, up against very tough Beyblade comparisons, and consistent with the direction we provided in February, we expect most of of the revenue growth to come in the second half.

Now I would like to review the performance of our three major segments, U.S. toys, games, and international.

In the U.S. toys segment, revenues were $152.4 million, a decrease of 1% compared with revenues of $153.4 million last year.

We had solid growth from a number of our core brands including Playskool, up 46%, and Transformers, up 17%.

Super Soakers, a brand we targeted for improvement this year, grew 21%.

Offsetting these increases were declines from Beyblade and Zoids.

U.S. toys operating profit was $1 million, compared to $5.3 million last year, reflecting a declining gross margin due to product mix.

The impact of product mix is not expected to be as significant in future quarters.

In the games segment, revenues were $127.6 million, an increase of 14% compared with revenues of $112.2 million last year.

The revenue increase is primarily due to the strong performance from the Wizards of the Coast trading card game business.

The U.S. launch of a new trading card game Duel Masters, contributed significantly to the quarterly growth year-on-year, and heading into it's 11th year, Magic the Gathering was up 16% as well.

In the board game business we had significant growth in the childrens and preschool categories.

This was offset by decline in the adult game category, primarily related to Trivial Pursuit 20th Anniversary Edition, now in it's third year domestically.

Operating profit in the games segment was $19.6 million, compared to an operating profit of $18 million last year.

International segment revenues were $180.7 million, compared with revenues of $175.4 million in the prior year.

This represents an increase of 3% in U.S. dollars, but a decrease of 8.8% in local currency.

Then revenue decline in local currency can be primarily attributed to Beyblade, which was down significantly compared to last year.

As we said at the end of last year, Beyblade revenue in 2003 was more significant in our international business.

Offsetting this was a strong international performance from a number of core brands including Magic: the Gathering, Playskool, Monopoly, Transformers, and My Little Pony.

The international segment incurred an operating loss of $10 million for the quarter, compared with a loss of $6 million last year.

The increased loss was primarily due to the decline in local currency revenue, as well as an unfavorable impact of foreign currency translation on expenses.

Turning now to consolidated earnings.

For the quarter, we reported net earnings of $6.5 million, or 3 cents per diluted share.

This compares to net earnings of $1.2 million, or 1 cent per diluted share a year ago.

Earnings before interest, taxes, depreciation, and amortization were $45.7 million, compared to EBITDA of $47.4 million last year.

Moving on to margins, gross margin was 60.6% compared to 62.7% last year.

Most of this decline was expected, and reflects a change in the mix of our product line.

Primarily in the U.S. toy segment.

As already discussed, this impact is not expected to be as significant in future quarters.

In looking at expenses for the quarter, all expense line items were down year-over-year, except advertising and research and product development.

Increases in both of these line items reflect our ongoing strategy to invest in core brands and new product innovation.

Research and product development expenditures increased marginally to $31.7 million, compared to $30.5 million last year.

Advertising increased to $55.3 million, compared to $53.2 million last year.

Royalty expenses were slightly -- were down slightly to $32.6 million, compared to $33.8 million last year.

Selling, distribution, and administration expense of $138 million reduced in both absolute dollars and as a percent of revenues.

As savings associated with cost reduction programs were only partly offset by the impact of translating international costs at higher foreign currency exchange rates.

Absent the impact of foreign exchange rates SG&A would have been down $8.4 million, or 6%.

Interest expense was down significantly to $8.3 million, reflecting the pay down and repurchase of $368 million, principal amount, of long-term debt since year-end 2002, including the tender offer we completed in December.

Now turning to the balance sheet.

Receivables were $206.2 million, down $80.4 million compared with last year.

Days sales outstanding reduced by 17 days to 39 days.

Absent our securitization program, receivables would have been $279.2 million, and DSOs would have been 53 days, this compared to 56 days last year.

Inventories decreased by approximately $34 million from a year ago to $188.3 million, reflecting continued focus on supply chain management.

The balance sheet also shows total debt, net of cash, of $71.6 million, a decrease of $493.9 million compared to a year ago.

This reflects both our strategy to deleverage, as well as our strong cash generating ability of the underlying business.

Our debt-to-cap ratio declined to 33% compared to 41% last year.

And our long-term goal remains to reduce our debt-to-cap ratio to a 25 to 30% range.

In the first quarter, our Board of Directors increased the quarterly cash dividend payable in May to 6 cents per share, from the previous quarterly dividend of 3 cents per share.

We were also pleased to be upgraded to investment grade by [Situatings] and Moody's Investor Services during the quarter.

Both firms acknowledged Hasbro's financial improvements and reduction in debt.

In closing, we continued to make progress this quarter toward our financial goals.

We are on track to grow revenue, improve operating efficiencies, and increase earnings this year.

Although we expect most of the improvement will come in the second half of the year.

With that, Al and I will be happy to take your questions.

Thank you.

And at this time, if you would like to ask a question, please press star 1 on your touch-tone phone at this time, and we will take your questions.

Thank you.

Once again, please press star 1 on your touch-tone phone.

Thank you.

Our first question comes from Tony Gikas.

Your line is open.

Please state your company name.

Good morning, Piper Jaffray.

Two questions related to the potential of Toys R Us store closings.

Do you think that -- number one, do you think that this could shrink the market overall, or do you think that consumers will just go to other retailers and there's really no shrinkage of the overall market, and number two, are you seeing any interruption in product flow with that client, if you don't mind?

Thanks.

Good morning, this is Al.

In answer to your first question, yeah, I think consumers are going to find what they need, and I don't suspect that store closings whether it be from Toys 'R' Us, K-B, or anyone else are going to reduce demand for toys.

There are plenty of opportunities, plenty of stores around for people to buy their product.

Some people have talked for years about being overstored not just in toys, but overall in retail, so I don't think that because a store closes are we're going to sell less toys.

In terms of are we seeing less shipments from Toys 'R' Us, I don't want to get too specific about any one account.

I will say during the first quarter, we've seen shipments in to retailers at a pace lower than our point of sale.

I mean, our POS at retail is up double digits from a year ago here in the U.S., where we measure about 80, 85% of our business.

Shipments into those retailers are only up as we reported this morning about 2.7%.

I think that's a combination of several factors, one of which would be the uncertainty surrounding a Toys 'R' Us strategic evaluation, K-B's Chapter 11, as well as just an overall emphasis on managing their inventories to the lowest level possible.

Okay.

Thanks, guys.

Thank you.

And our next question comes from Sean McGowan.

Your line is open.

Please state your company name.

I'm from Harris, Nesbitt, Gerard.

Also two questions.

One, could you specify what the $2 million other income is on the income statement, and second, can you talk about what factors drove gross margins lower?

Thank you.

Okay.

In terms of the first question, it's primarily relates to the Lucas mark to market on the warrants.

As you know, when we adopted FAS 150 last year, we had to reclassify the Lucas warrants as a liability in mark to market on a quarterly basis.

Last year, there were -- I think there was a $17 million charge when we adopted this, which was a one-time accounting change, and then a further $13 million in the second half of the year.

We will have to keep mark to market ongoing.

This quarter it turned out to be a fairly small positive, as opposed to a negative.

And the second question, in regard to gross margin, I think I said it was product mix, and in fact our margin in the first quarter was 60.6%, which although down on the first quarter of last year, which was 62.7%, it's actually better than any other quarter last year, which were respectively 60.3, 56.8 and 58.6, and the average for last year was 59.

And I think we have products within our line, some of them which at the extreme, some approach an 80% cost and a 20% gross margin, and others that have closer to a 20% cost and an 80% gross margin, and although while most products fall much closer to the norm of a 40% gross margin -- 40% cost, 60% gross margin, in any given quarter, you can get, depending on the mix of your products sold, some variation.

So in the first quarter, we were down 2.1 percentage points.

We had expected that when we did our budget and looked at our year, and, in addition, it's not something that's concerning us for the full year.

We do believe that our gross margin -- we continue to believe that the gross margin for the full year will only be slightly down on the full year last year, and that primarily reflects a lower mix of Beyblade.

Is Beyblade unusually high margin?

Beyblade was a pretty good margin item, yes.

I would imagine that's also true of Trivial Pursuit?

Trivial Pursuit was also quite a good margin item, and you're saying although those are two items that may be reducing, but similarly we're launching Duel Masters, which is a very good margin which we believe would offset those.

Could I squeeze in also a question on Bratz sales in Europe and Latin America, are they off?

They're doing well.

We started shipping Bratz in some of the new European countries where we picked up France and Germany during the latter part of March, so we're just beginning to ship, but we're off to a good start, and it's selling according to plan right now, but it still didn't have a big impact in the first quarter.

Thank you.

Thank you.

And our next question comes from Dean Gianoukous.

Your line is open.

Please state your company name.

Hi, J.P.

Morgan, just a couple of questions.

First could we get then overall impact FX to the bottom line.

Secondly just to follow up on that Bratz question.

If I remember, Bratz started in Europe, are -- because you're distributing now, are you actually seeing a pick-up in sales, are you able to get more product on the shelves and actually push retail demand?

And then finally, Duel Masters you said were shipped in early March.

When we look forward over at least the next couple of quarters, was the shipment unusually high because you were launching it, or should we continue to expect shipment to be up fairly big going forward.

Thank you.

I'm going to let David take the FX impact on the bottom line in a moment.

Let me just talk about Bratz Bratz, we started ship -- we had Bratz last year in a couple of the smaller European countries, and we also had Bratz in Latin America.

So I don't know that we have any change in our ability to get Bratz on to the shelves, or driving to the market place in those countries.

We did pick up France and Germany these year.

Those are the two major countries we picked up.

We just started shipping in March.

There was a little product left over from the previous distributor that had to work its way through the marketplace, and that's why we didn't ship a lot of product in -- earlier in the quarter.

That product has now worked it way through the market place.

We're getting all the shelf space that we need.

The retailers in Germany and France are enthusiastic about the line, and it's off to a good start, and we should have a good year with it.

In terms of Duel Masters, anytime you launch a trading card game, you have a bit of a spike.

You know, in terms of, will we ship at that rate for the balance of the year, I wouldn't want to forecast that.

We think it's -- we're off to a good start.

We have high hopes for the brand.

We want to build Duel Masters, though, into a long term brand very similar to Magic: the Gathering, so we're not going to treat this brand as a sort of fashion orientated promotional trading card game.

But every time you ship a -- you have a new product launch or you ship a new edition of a trading card game, you get a bit of a spike, but we sort of factor that into our expectations for the year.

David, do you want to talk about the FX impact?

Yeah, with regard to foreign exchange, if we translate foreign revenues, expenses, and earnings this year, at last year's rates, then revenues would have come down from 474 to 453, which is a $21 million reduction, and net earnings would have come down from $6.5 million to $4.8 million.

That's about a $1.8 million bottom line impact of foreign exchange.

Thanks.

Just one follow-up, if I can.

What I was trying to get at, Al, if you would just touch on, do you think Bratz was undershipped in retail prior to you taking over.

Do you see an opportunity in that whoever had it before you did not ship enough product into the channel?

I do not know that in terms of France and Germany that they didn't ship enough product into the market.

I think that we will do a better job overall in terms of marketing and promoting the brand in those countries.

That ought to drive sales, which means that we would ship more product in.

But, you know, I just am not familiar enough with how well the previous distributor handled it in those markets, but we do think we'll do a better job marketing overall.

Okay.

Thanks a lot.

Thank you.

And our next question comes from Jill Krutick.

Your line is open.

Please state your company name.

Smith Barney.

Thanks very much.

I wondered if I could get a little more clarity on Beyblades if the drop-off you saw in the quarter was more in line with your expectations, which quarters have the toughest comparisons for Beyblades.

And secondly on inventory reductions by retailers, are you anticipating that your revenue in the first half versus the second half is going to see a decided shift in terms of your overall full year contribution, and are the inventory reductions much different than what you've been seeing over the past many years?

Thank you.

Good morning, Jill.

This is Al.

In terms of Beyblade, and let me speak to the U.S., where I have much more reliable POS, we track POS at about 80 to 85% of our overall business.

Beyblade POS is actually up a little bit, it's up about 3.5% through the end of last week.

Whereas shipments in are down about 50% from a year ago, so the brand is still doing well at retail, but shipments in are down considerably from a year ago.

We would expect you know that trend to continue in that overall we would plan for Beyblade to decline this year from the roughly $325 million it did last year.

But so far so good.

I don't think it's performing differently than our expectations were, and that's a general statement, because you -- you know, we thought it would still do well at retail, but we also expected a decline in shipments.

In terms of inventory reductions, I think those people that are really focused on managing the supply chain, continue to push it down, and I would see that trend continuing for the balance of the year, and for the years ahead.

I mean, I don't think we ever say that it's over.

I think people continue to look for ways to manage their supply chain more effectively.

You know, this is a seasonal business, so if you look at when toys are sold, the vast majority obviously are sold during the holiday season, and most retailers want to get as close to the sale as they possibly can.

Now that's not possible in all cases, given the ability to flow merchandise, but they keep pushing in that direction.

Back on Beyblade for one second.

Al, in terms of the comparisons throughout the year on that particular product line, is there a couple of quarters to single out in terms of what the biggest selling quarters last year, or were they all sort of equally distributed in terms relative to their contribution.

Let me answer the question this way, I think we're going to see most of the growth in Hasbro's business in the second half of the year, and that's for a variety of reasons, including Beyblade.

Thank you.

Thank you, and our next question comes from David Leibowitz.

Your line is open.

Please state your company name.

Burnham Securities.

Thank you very much.

A few of questions if I may, totally unrelated.

Number one, royalty income, is that going to be a larger percentage of revenue and earnings this year than it was a year ago?

David do you want to take that?

The answer is no, royalty income will not be a larger percentage this year.

Number two, the success so far with Central, is that because the competition hasn't gotten their shipping schedules as early in the year as you have, or is it because you have a superior product?

Good morning, this is Al Verrecchia.

I think I would say we have a superior product, and leave it at that.

Hey, we've got to get some levity into these things.

It's dry otherwise.

Last question, if I may.

Nothing was said about Shrek, and that was an important license when you presented it both at Toy Fair and the November prefair.

Any words of wisdom about Shrek?

Shrek is coming out later in the year, along with Incredibles, and a whole bunch of other toys and games that we have coming, and that's just one of the reasons why we think in the second half is going to be much better than the first half for Hasbro.

And lastly shifting gears to the second half of the year, as this year appears to be, does that increase the chances of your inability to meet demand for a hot toy?

Well, look, I think that we all have to learn to manage the supply chain more effectively.

That's particularly difficult when you have, you know, a hot toy or you have any kind of a fashion business.

I think we can do -- we're doing better this year than we did last year, and I think we'll do better next year than we did this year.

It's something that you constantly work out with your retailers, and that's-- the key to that is better planning of the business, and, you know, focusing on watching POS and making those right calls.

It's certainly going to be much more difficult in the toy business, which has that fashion component to it than it is for selling milk, bread or laundry detergent.

Thank you very much.

Thank you.

And our next question comes from John Taylor.

Your line is open.

Please state your company name.

Hi, I'm with Arcadia.

Good morning.

I got a couple of questions as well.

David, I think you mentioned the Wizards of the Coast store impact on revenue.

Was there any meaningful impact on the comparison of profitability from the closure of those guys?

Well, we certainly saved some operating losses, which we would have had associated with the retail stores last year.

I think that would probably be in the range of about a $4 million loss in the first quarter of last year.

Okay.

All right.

And then, I think there's a perception that there may have been some overhang, particularly in Europe, of product that was sold in at the end of last year.

Do you get the sense that most of that was absorbed in the first quarter, or is it still kind of lingering out there, which may have an impact on orders?

Are you to talking about our product, or just in general?

Oh, in general.

In general, I think there was some overhang in France, in particular, as opposed to some of the other European countries.

I think most of that has worked it's way through as customers, when I say customers, as retailers have had promotions going on to try and clear out the inventory.

Other than that, I don't know of anything else that was out of the ordinary.

Do you think that had any meaningful impact on your ability to sell in the first quarter in France?

Yes, I do.

Yeah, okay.

All right.

And then, let's see, the -- the questions about gross margin, I think we're trying to reconcile the eroding gross margin with maybe the make shift in favor of Wizards product, which, you be, has great margins and so on.

Can you give us any more color on kind of what might be going on behind that line?

It sound likes Beyblades is probably the single biggest factor, and maybe a little bit of video now at the lower gross margin?

Is that possible?

Again, I think -- this gets complicated, but one of the ways it also impacts it is how we ship it.

We sell some product FOB, where the customer takes delivery in southern China, and other product that we sell here in the U.S.

When we sell it FOB, we make a lower gross margin, but we also have lower costs, because we don't have the costs of shipping it to the U.S., warehousing it, then getting it out to the customers' distribution centers, so one of the other elements of mix during the first quarter, was we did a relatively high portion of LC versus domestic compared to the first quarter of last year.

And, as I say, you have a lower gross margin on your LC/FOB product, but it doesn't impact the operating margin level because you have lower costs in terms of shipping and distribution.

Okay.

So that was a fairly significant Delta year on year.

Yeah, that was certainly part of the explanation.

Okay, thank you very much.

Thank you.

And our next question comes from Felicia Kantor.

Your line is open.

Please state your company name.

A hi, guys just couple of questions.

One is, David, did you say in local dollars what the operating income, or operating loss, was in your international business?

No, I said the impact -- the impact of foreign exchange on the bottom line was about $1.7, $1.8 million, and obviously that would have all been internationally.

Okay.

I just wanted to clarify.

Also, can we just put this -- your Bratz business into perspective?

Can you give us an idea of what percentage of your international revenues that would be, you know, low single -- I mean you're not going to give us an exact percentage, I know, but could you give us a range?

It's going to be a small percentage of our business.

Again we have France, Germany, and a couple of other smaller countries.

We do not have the UK, we do not have Spain, do not have Italy, so it's going to be a a small percentage.

Great.

And then, just finally, could you tell us why, and if you mentioned this, I apologize, your tax rate was so much lower than normal, and could you also just -- higher than expected share count?

In terms of a tax rates, the Lucas mark to market is nondeductible, and when that was a positive last year, it actually increased our tax rate from an underlying 26% up to about 28, 29% in a couple of quarters, and this year in a very low base, in the first quarter, profitability, to 1.7 million Lucas, which was a favorable mark to market, reduced our tax rate from an underlying rate of about 28% down to 22.

All right.

And shares?

Share count is effect -- it's not dramatically different to what it has been.

Again, it does change a little bit.

To recognize the amount of shares that you potentially have to use to settle the Lucas liability, if we choose to settle in stock, as opposed to cash.

And then the other thing is, there have been more as our stock has gone up, certainly compared to a year ago, there are more options that have become in the money.

Okay.

Since this Lucas warrant issue is constantly a moving target, is there some kind of formula you can give us that could help us model going forward, because it obviously affects other income lines.

Yes there is.

I mean, our agreement with Lucas is they have the exercise to put, either for $100 million in cash, or for $110 million in stock.

But when we did the deal, about just over a year ago, 14 months ago, I think the stock was about 12, and to settle $110 million in stock would have required about 9 million shares, and to settle it now requires, you know, you take 110 million, divide it by the current stock price, and that would tell you how many shares it would require to settle Lucas mark to market -- Lucas put.

Right.

But how would we be able to calculate what the tax rate would be?

It's non-tax deductible.

Okay.

Mark to market.

Okay.

Thanks.

Thank you.

And our final question comes from Thomas Russo.

Your line is open.

Please state your company name.

Hi, Smith Barney.

Hi, Tom how are you doing?

Good, thank you.

For David, a couple of quick questions.

Did you say that Wizards, the store closings had an impact of $4 million for the full year last year.

No, for the full year Wizards stores incurred a operating loss, there were some other closings costs as well, but for the last two to three years there's been drain associated with the Wizards of the Coast retail stores of about $20 million a year.

So for the full year we would expect about a $20 million improvement associated with that.

Good.

And then, did Al say that Beyblades shipments, first quarter, versus the POS growth, were the shipments down 50% or 15?

Shipments were down about 50% from a year ago domestically, and probably pretty close to that internationally, as well.

POS domestically was up about 3.5% from a year ago.

Okay.

Al, David, the higher mix of letter credit business this year versus last, does that suggest a weighting towards any one customer or channel of trade?

Any shift within your customer base at the same time?

No, most of the people who buy FOB out of the Orient tend to be the larger discounters as opposed to the smaller accounts.

Let me add one thing about the gross margin.

There are an awful lot of factors that can impact gross margin in a given quarter.

Don't forget, included in that gross margin calculation is we start with net sales.

So if promotional activities, if the amount of closeouts you have in a given quarter, all of those things can affect net sales in any given quarter, and therefore could impact, you know, the gross margin.

That's why we have to look at gross margin, you really have to sort of peel the onion back a few layers, and say okay what's happening with our product mix, is there anything unique this year in terms of our promotional activities, in which case, our accruals for discounts and allowances could be a little different in a given period of time.

And that's why David has been saying, is overall, for the year, we would expect a gross margin to be off just a little bit compared to last year, and that's primarily due to the impact of Beyblade.

There's a whole host of things that impact gross margin, and as you get towards the end of the year, and you true up a lot of things, you get a much more finite number.

At the same time, aren't we supposed to compliment you for starving the trade a little bit as you wind down Beyblades from that frenetic pace last year?

I mean, isn't this exactly what you're try to do?

Well, I wouldn't want to characterize it as starving the trade, because then they're going to call me up just after you hang up --

Dieting, dieting the trade.

Giving the trade a low carb Beyblade diet.

Okay.

That's a good one.

My last question was the 24% growth in core brands, for the quarter, contrast with the 2.4% or 2.7% overall revenue growth.

If you just run the number, it would place core brand volumes at a fairly small percent of total unless they were offsetting, their growth offset a fairly meaningful decline in some other categories, could you sort of profile the magnitude of what 24% core brand growth ought to have had as a revenue impact, given the relatively light overall revenue growth?

I'll let David talk to that in a moment, but, you know, there are a lot of products that come and go in any given year.

I mean Zoids is way down from a year ago.

We have products in some of the other product category that are going to come and go in any one given year.

You go back last year and a little bit this year, you had Bob the Builder, but I'll let David talk to the overall percentage of core brands to the total.

Our core brand drivers, as a group, were somewhere between 40 and 50% of our total shipments during the quarter, so it's a 24% increase on a fairly significant part of our business.

The offsets to that, as we said, Beyblades, while it held up well at retail, was significantly down in shipments in in the U.S., and at this time last year, we were still launching Beyblades into the international markets, so we were actually still filling the distribution pipeline.

So Beyblades is down, Zoids is down, Trivial Pursuit 20th Anniversary Edition in the U.S. where it's now entering its third year is down.

Where it's partly offset by initial shipments into some of the European markets where it's just coming into the 20th anniversary.

So over all, core brands, they have been becoming an increasing part of our business, which is what we want them to be, because they're more sustainable and reliable, they were up 24%.

The reduction is Beyblade primarily, and that's from a very high level last year.

You know, let me just add to that, if you go back a few years, when Hasbro had a hot property, whether was to an entertainment property or something we developed on our own, like a Beyblade, and that started to decline, you know, Hasbro would end up with the steep decline in sales, would end up losing money, and I think this company is very different today.

We're absorbing a 50% decline in Beyblade, we're absorbing the decline in TP20, we're offsetting it with increases in other products, we're improving our earnings and strengthening our balance sheet, which is a real contradiction to what would have happened to this company two, three, or four years ago.

We're never going to eliminate, nor do I think we should eliminate the fashion component of our business.

We're going to have hot properties.

As we've said early on, one of the reasons we tend to forecast 3 to 5% growth is in any given year we can have a hot property and have above trend growth, but over the longer term, we look at the 3 to 5%, because of that fashion component that exists in the toy business.

Thank you.

All righty.

Thank you all for joining us.

I think that's it, unless there are any more questions.

If not, have a good day.

Thank you again.