孩之寶 (HAS) 2011 Q1 法說會逐字稿

Good morning, and welcome to the Hasbro first-quarter 2011 earnings conference call.

At this time, all parties will be in a listen-only mode.

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, Vice President of Investor Relations.

Please go ahead.

Thank you, and good morning, everyone.

Joining me today are Brian Goldner, President and Chief Executive Officer; David Hargreaves, Chief Operating Officer; and Deb Thomas, Chief Financial Officer.

Our first-quarter 2011 earnings release was issued earlier this morning and is available on our website.

The press release includes information regarding non-GAAP financial measures included in today's call.

Additionally, whenever we discuss earnings per share, or EPS, we are referring to earnings per diluted share.

Please note that beginning in the first quarter of 2011, Hasbro has reclassified certain of its products from the Boys category to the preschool category.

A table restating net revenues by category for 2010 and 2009 to reflect the 2011 category classification is included in today's press release.

This morning, Brian will discuss key factors impacting our results and Deb will review the financials.

We will then open the call to your questions.

Before we begin, let me note 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.

These forward-looking statements may include comments concerning our product and entertainment plan, anticipated product performance, business opportunities and strategies, costs, financial goals and expectations for our future financial performance and achieving our objectives.

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

Some of those factors are set forth in our annual report on Form 10-K, 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.

Now I would like to introduce Brian Goldner.

Brian.

Thank you, Debbie.

Good morning, everyone, and thank you for joining us today.

In February, we indicated that Q1 would be challenging, given the higher retail inventories entering the year, as well as the timing of several of our new initiatives.

Having said this, we are pleased with our first-quarter performance, which is on track with our plan for the full year.

The International segment posted another quarter of strong growth, increasing 15% year over year, with positive gains in every major geographic region.

This growth helped offset the decline in the US and Canada segment, which was down, as expected, in the quarter.

The Gathering in the games and puzzles category continued their recent trend of strong year over year gains.

Dark of the Moon, the third installment of the Transformers movie franchise, which is being released in theaters on July 1.

These shipments will increase significantly in the second quarter as product is scheduled to be on shelf the week of May 16, ahead of the movie release date.

Also in the first quarter we shipped product in support of Marvel's release of Thor, due in theaters May 6, and so far it is selling well.

the First Avenger, due in theaters July 22.

Beyblade continues to be in short supply around the world.

We are increasing production, but demand is so strong we will likely not fully catch up until during the third quarter.

First-quarter spending reflects our continued investment in our business for the longer term.

Increases in product development in the quarter reflect developing innovative beta product lines for this year and beyond.

In addition, Q1 reflects being fully staffed at Hasbro Studios and increased spending levels for our overall television initiatives versus a year ago, including program amortization costs and support for Hubworld.com.

Overall, we remain on track for our long-term plan in respect to television.

Shows based on Hasbro's brands and produced by Hasbro Studios have led The Hub's ratings, with seven of the top 10 rated shows being Hasbro Studios productions.

The Hub just completed its upfront presentation to advertisers, who are enthusiastic about the great lineup of new and returning shows for season two.

From Hasbro Studios, there are six new, original shows based on a number of our brands.

Those series are joining five shows from Hasbro Studios that are returning with all new episodes for season two.

The network continues to add advertisers, and currently has more than 100 advertisers, the vast majority of which did not advertise on Discovery Kids.

Canada is the first market outside the US in which our programs are airing.

In the second half of the year, we will see broader distribution of our shows on some of the top-rated kids' networks in major markets around the world, including the UK, Germany, Spain and Italy.

We anticipate our shows being on the air in as many as 20 countries this year throughout Europe, Asia and Latin America.

Looking ahead in 2011, in addition to a robust entertainment lineup, we have a number of very exciting new product launches scheduled.

These include Kre-O, our new construction brand built around Transformers for 2011.

Initial shipments will begin shortly, to be in stores in the US and Canada in July.

Also in the coming months, we will see the launch of Sesame Street products, including Let's Rock Elmo in our Preschool line.

These products will begin shipping later this quarter, with the first products in US stores in August.

Within the games category, the new interactive gaming platform, LIVE, for both Monopoly and Battleship is scheduled to be on shelf in the fourth quarter and delivers an entirely new interactive experience for game players.

Many of you viewed these products at Toy Fair in February.

We were extremely pleased with the reaction to our line for this year by retailers, the media and you, our shareholders.

We are partnering with our retailers globally in support of our entertainment initiatives, as well as the continued growth of our core brands.

Overall, we remain very optimistic about 2011, which is the first year in which we are fully activating our brand blueprint across all its elements.

We will see momentum starting to build in the second quarter, as we support several major motion pictures coming into theaters in May and July.

We will continue to fuel this momentum with many new innovative product initiatives across virtually all of our business.

Our International business is expanding and supported with several new offices and investments in building our emerging markets presence.

The stage has been set for a strong year, and we continue to believe that we will grow revenues and earnings per share for the full year 2011.

Now I'd like to turn the call over to Deb.

Deb?

Thank you, Brian, and good morning.

As Brian stated, the first quarter was consistent with our plan for the year.

We delivered revenues just below last year, while we continued investment spending in select strategic areas to support the future growth of our business.

For the first quarter, worldwide net revenues were $672 million versus $672.4 million last year.

Foreign exchange had a positive $4.8 million impact on net revenues for the quarter.

Operating profit for the quarter was $48.9 million versus $69.3 million in 2010.

Looking at our segment results for the first quarter 2011, the US and Canada segment net revenues were $391.2 million versus $424.7 million last year.

We had anticipated declines in this segment for the first quarter, given the higher retail inventory at the beginning of the year.

Within the segment, the Boys product category grew in the quarter, but was offset by declines in the Games and Puzzles, Girls and Preschool category.

The US and Canada segment reported an operating profit of $41 million or 10.5% of revenue.

This compared to $61.1 million or 14.4% of revenues in 2010.

The decline in operating profit reflects higher product development and SG&A cost, as we fund our business for future growth and new initiatives both this year and in coming years, as well as an increase in royalties from the mix of revenues to more royalty-bearing products in the Boys category, including Beyblade.

Net revenues in the International segment increased 15% to $254.3 million versus $221.7 million in 2010.

Absent a positive foreign exchange impact of $3.1 million, net revenues in the International segment grew 13%.

The results in this segment reflect growth in all major geographic regions as well as growth in the Boys product category.

Declines in the Games and Puzzles, Girls and Preschool product categories partially offset this growth.

The International segment reported an operating loss of $1.7 million compared to an operating loss of $2.4 million last year.

The segment's results reflect our continued investment in emerging markets.

The Entertainment & Licensing segment net revenues declined 2% to $24.6 million compared to $25.1 million in 2010.

These results reflect declines in licensing revenue, primarily associated with timing of revenues from 2009 movie Transformers - Revenge of the Fallen, mostly offset by growth in licensing revenues from other brands, as well as movie and television-related revenue.

The Entertainment and Licensing segment reported an operating profit of $5.4 million compared to $9.4 million last year.

These results reflect lower lifestyle licensing revenue, our fully-staffed television initiative, $3.1 million of program production amortization cost in the first quarter 2011, as well as support for our online initiative.

Now let's look at earnings.

For the first quarter 2011, we reported net earnings of $17.2 million or $0.12 per diluted share compared to $58.9 million or $0.40 per diluted share a year ago.

Net earnings for the first quarter 2010 included a favorable tax adjustment of $21.2 million or $0.14 per share.

Excluding this favorable adjustment, net earnings for the quarter were $37.7 million or $0.26 per share.

For the quarter, average diluted shares outstanding were 141 million compared to 151.3 million last year.

Cost of sales in the quarter was $267.2 million or 39.8% of revenues versus $262.7 million or 39.1% of revenues in 2010.

The year-over-year increase is primarily due to a slightly higher cost due to the mix of product sales during the quarter and unfavorable manufacturing variances from a slowing of games production in the US as we work through existing inventory.

Operating profit margin decreased to 7.3% versus 10.3% last year.

Spending in the first quarter includes higher product development costs to support the increased number of initiatives Hasbro has planned for later this year and for the next several years, continued investment in the emerging markets and our now fully-staffed team supporting our television initiative.

The impact on earnings from these continuing investments is more apparent in Q1 given our first-quarter revenues are generally the lowest of the year.

Advertising declined in dollars and as a percentage of revenue.

As we indicated in February, in years with a high number of entertainment initiatives, we expect advertising as a percentage of revenues to be in the lower end of our typical range.

On a year-over-year basis, SG&A cost increased, in part due to support of our television and emerging-market initiatives, as well as our SAP and European shared services implementation.

These investments both drive future revenue growth as well as future increased organizational efficiencies.

We continue to expect SG&A to be below 20% of net revenues for the full year.

Moving below the operating profit line, interest expense increased by $4.6 million to $21.4 million, primarily due to the debt offering we completed in March 2010.

Other expense net totaled $4.7 million compared to other income net of $1.7 million a year ago.

As you may recall, our 50% share of The Hub is included in this line on the P&L.

For the first quarter, our share of the earnings in The Hub was a loss of $2 million compared to income of $500,000 in 2010.

This year's results reflect continued marketing to drive awareness of The Hub and increased cost in support of the newly relaunched network.

Additionally, we experienced higher foreign currency losses in 2011 compared to 2010.

For the first quarter 2011, our underlying tax rate was 28% compared to an underlying tax rate, excluding the favorable tax adjustment, of 29% in 2010.

Now let's turn to the balance sheet.

At quarter-end, cash totaled $927.4 million compared to $1.3 billion a year ago, and is up from $727.8 million at year-end.

Operating cash flow in the quarter was $276.5 million.

This includes $17 million in television programming costs for the quarter and $64 million over the past 12 months.

In December 2010, we entered into a new $500 million credit facility, which extends through December 2014.

And in January of this year, we established a commercial paper program to allow us to issue commercial paper as a source of short-term liquidity, as needed.

In March 2010, we called our outstanding convertible debt.

This was reflected as the current portion of long-term debt in the first quarter 2010 balance sheet.

During the first quarter 2011, we repurchased a total of 1.4 million shares of common stock at a total cost of $63.7 million and at an average price of $45.48 per share.

At quarter-end $86.4 million remained available under the current share repurchase authorization.

During the first quarter, our Board of Directors increased our quarterly cash dividend 20% to $0.30 per share from the previous quarterly dividend of $0.25 per share.

This increase will be effective for the second-quarter payment in 2011.

The quality of our receivables portfolio remains good, and receivables at quarter-end were $559 million compared to $526 million last year, and down from $961.3 million at year-end.

DSOs were 75 days, up 4.5 days versus last year.

The increase is primarily due to growth in International emerging markets, which have a longer payment terms.

Inventories at $401.3 million compared to $226.8 million a year ago, which was exceptionally low, and $364.2 million at year-end.

Since year-end, we have worked to lower our carryforward inventory.

Retail inventories are down year over year, and we had a number of programs to help sell this through.

At the same time, we are adding inventory in anticipation for the year's many new initiatives.

Additionally, due to the changing nature of manufacturing in China, our partners are building more product year-round to level-load their factories.

And, as we discussed with you last year, this is resulting in additional inventory on our books.

Depreciation and capital expenditures in the quarter were $20.3 million and $22.4 million, respectively.

Overall, our first-quarter results are consistent with our expectations.

Hasbro's financial position is strong, our investments are fueling our growth and we remain excited about our new initiatives launching in the coming months.

Brian, David and I are now happy to take your questions.

(Operator Instructions) Sean McGowan, Needham & Company.

Thank you.

Good morning.

I was wondering if you could help us better understand how much of the increase in Boys sales are from Transformers and Marvel, as opposed to Beyblades.

Overall, Sean, we shipped a limited amount of Transformers for the movie in the first quarter, and we began at some shipments for Thor.

Captain America and Transformers will really ship in earnest in the second quarter.

And in the first quarter, we did have good-sized shipments of Beyblade, although we were and continue to run short of global demand.

So we will continue to catch up through second quarter.

So said differently, if you look at second quarter, you're really looking at a number of Boys initiatives all shipping -- Transformers in time for the May shelf date for the movie, Beyblade, Thor and Captain America all in Q2.

I know it's easy to get overly excited about percentage changes on an relatively low quarter, but would you say Beyblades was the major contributor to the --?

Yes, that is right.

If you look at the ranking of contribution in the Boys category, Beyblade would be the top, followed by Transformers.

Okay.

And then another question.

On the investment spending in emerging markets, and things we have heard about for some time now, how long do you expect that to be kind of a drag on operating margins?

Are we getting near the end of that being a negative influence?

Let me say one thing, and David will comment as well.

We opened our Colombian office just in the first quarter.

And obviously, we are putting inventories into our new owned and operated markets.

And obviously, the progress we are making in International is really quite strong.

So you are sort of seeing that in costs, but you are also seeing that in inventory.

And, David, you want to talk about it?

Yes.

I think our investment in emerging markets will be ongoing, but it won't necessarily be the same market.

As Brian said, right now, it's Columbia that we are opening and it's new and we incurred some expenses ahead of the sales.

A couple of years ago, we were investing in Brazil, and we built infrastructure and overhead there before we really got the sales.

And next year or the year after, it is very highly likely that it will be some other market that we are entering in.

I think also in a major market such as Brazil and China that we will continue to probably overspend compared to more mature markets on advertising as we start to build the brands in those markets that have the potential to be several hundred million dollars in a few years out.

Yes.

So we are committed to growth in emerging markets, and I think you are going to continue to see investment spending against that.

Yes, having said that, Sean (multiple speakers) -- go ahead.

I think -- one of the things is we have said and we are still on track to -- some of the markets today, the major markets which are dilutive and not breakeven, we've said that they would be breakeven or better by 2013.

But that is not the case for all of the markets.

I mean, some of them, like Eastern Europe, are already making pretty good returns today.

But even the ones that are making pretty good returns, is it fair to say that they are probably a little bit more seasonal than even the US, like -- with sales more loaded and therefore profits more loaded in the second half?

I think so.

So I mean, clearly, the first quarter -- when you put in investment spending, you increase your fixed costs.

Obviously, that happens on a fairly linear basis, so 25% a quarter.

But our sales, we might have 15% in the first quarter and 33%, 35% in the fourth quarter.

So the impact of this incremental overhead that you are putting on in emerging markets in SAP and other areas is much more noticeable in the first than it is in (multiple speakers) the second, third or fourth.

Okay.

Last question.

Any comment on The Hub ratings progress?

Yes, we continue to make good progress on the ratings over the period since launch.

We continue to see that Hasbro shows are driving a lot of those ratings.

You will see -- not to take anything from Margaret -- but you will see a richer mix of Hasbro-related shows coming on to the channel as part of a summer lineup that she is going to be moving toward.

And we continue to make progress with advertisers.

We had a great upfront and advertisers are very enthusiastic.

We have more advertisers again in these next quarters than we've had since the beginning of The Hub's launch.

And so again, we are on our long-term plan for The Hub.

Great.

Thank you very much.

Michael Kelter, Goldman Sachs.

Hi, guys.

Can -- maybe talk about at this point, as you get closer, what retailer acceptance has been for Transformers as the third movie, both in the US, and whether you think you might be able to grow even off where you were in 2009, as you did off of 2007?

And then also abroad, and where there might be incremental opportunities versus your prior two movies.

Sure, Michael.

The movie is really tremendous.

I look forward to everybody getting to see it.

And of course, this time around it is in 3-D, so it will play in both 2-D and 3-D.

The acceptance has been, as well, very, very strong globally.

It is a brand that has tended to be very split between international and domestic market.

It is certainly a brand that has a long history and heritage in markets like China.

We have a very strong product lineup.

Additionally, we have a very strong product lineup and the launch of Thor is already underway.

We are starting to see some great uptake off of the shelf for Thor.

And Captain America begins shipping very shortly here for a later date of a July window and release.

And then of course, Beyblade is continuing globally; we are in 40 plus markets around the world.

So if you look at our Boys business overall, very strong.

And certainly, Transformers -- I'm not going to give you specific guidance, but certainly Transformers is a very robust line and is widely accepted and very enthusiastically being accepted around the world.

And then I wanted to ask a bit about board games.

Of course, it has been a hot button of late.

Can you maybe talk about the sellthrough at retail for the first quarter and what kind of trends you are seeing?

And then also what the state of inventory, both on your own books and at retail, might be for that particular segment.

Yes, I think there is a couple of trends out there that I will talk about, and I know David will talk as well about it.

In the holiday period, when you didn't get the merchandising that we described to you guys, there is a carryover effect early on.

So therefore, you don't have the merchandising out in the beginning of the year.

The Gathering, have all grown in the quarter.

So it is the really early days.

We had always said to you guys that we were focusing on major innovation, major changes in marketing and merchandising in the third and fourth quarter.

And we know that the games business is highly seasonal.

So we are on track for our plans for reinvention and reimagination of that segment and feel very good about our plans there.

David, I don't know if you want to talk about markets.

I think when we came out of the fourth quarter, where games wasn't as robust, there is a bit of a concern that as you come into the next year, would retailers still value games as a category as much as they had in the past and pursue it as aggressively.

Certainly as we've gotten into this year and we start to sit with major retailers and work out our plans for years and promotions for the years -- this year, they are as enthusiastic about the games category as they ever have been.

I think we did talk about some changes in strategy at the Wal-Mart Stores last year, which -- a couple of big promotional programs, such as the game [islander], which they didn't do last year.

I think clearly there has been a lot of talk about going back to Mr.

Sam's principles at Walmart and going back to where they had been previous years.

So I think we are going to see some of those promotional programs come back this year, which should clearly be beneficial.

And then one other question.

I wanted to hone in a bit on inventory, the $400 million level.

You explained the two things that are driving that, around the coming movies and the shift away from transitory workers in China.

I was hoping you could be a little more specific to help us get comfortable -- in some ways maybe contextualize the composition of the inventory, how much of it specifically is for movies, what the actual change is from the change in [introduction] strategy and how that will play out through the year.

A little more detail will be helpful.

Yes, so let me start again, and then David will pick up on it.

One of the things that has been very heartening is the progress we've made in international markets.

So that alone can drive a good proportion of increased inventories, as we gear up for major initiatives that are no longer, as we had been several years ago, more domestic initiatives, with a few countries going after them to be more global initiatives.

So there is a good proportion of that inventory that is identified for and going to our international markets, including new emerging-market businesses that we now own and operate, and we are going after that.

We feel very comfortable about the quality of the inventory, because, as you have indicated, we have a number of initiatives in the second quarter, not just in the Boys category, but to continue to fuel the growth of brands like our second-half Littlest Pet Shop efforts, as well as Furreal Friends, as well as some new games initiatives; and of course, Kre-O that begins late summer.

All products that will be shipping in the second quarter.

So, David, if you want to comment further.

Yes, [well, actually, as] everyone is aware, there is clearly a combination of inventories.

There is new stuff coming in supporting the second quarter.

And there's some carryover from the year-end.

As Deb said in her script, we have worked down, certainly, some of the carryover from year-end, but not all of it.

Games, for example, I think you know -- basically 45% of all board games sell in the last -- at retail, in the last six weeks of the year.

So it is very skewed towards the end and it will take a little while to work through all of the games.

But to the extent that the inventory -- carryover inventory is things like Play-Doh or games or it's in Littlest Pet Shop, those items are always going to sell.

Play-Doh will sell.

If we're a bit heavy on Play-Doh at the moment, there is no risk or exposure that going we're going to have to write it off or throw it away.

Play-Doh will sell, as will our board games that have been in our line for 30, 40 years.

So would we like to work the carryover down a bit quicker?

Maybe.

But are we worried about the quality of the inventory or that it is going to have some negative impact?

The answer is no.

Thank you very much, guys.

Felicia Hendrix, Barclays Capital.

Hi, this is actually Michael Tang on behalf of Felicia.

Just looking at your Preschool business, this was the first time it has declined in a year.

Was there anything in particular that drove the decline, and how are you thinking about that category for the rest of the year?

I think if I heard you correctly earlier, it sounds like Sesame Street might have an impact as early as the second quarter.

Yes, we have a number of new initiatives in the business.

I think it was a bit of an inflection point in the business in the first quarter.

But a number of new initiatives for second half of the year we feel very good about.

The innovation in that business has continued, as you indicated.

We have grown our Preschool business and will continue to intend to grow the Preschool business.

This year, Sesame Street does begin; second half of the year, we begin shipping that as well.

And a number of brands within Preschool that have worked exceptionally well globally, including Play-Doh and our Playskool brand.

So as we look at the full year, we feel very good about our progress and new initiatives that we have.

Great.

And then for program production cost amortization, that was just $3.1 million in the quarter.

It seems like this could be a relatively volatile line going forward, given where it was in the last two quarters.

Are you still on track for your guidance of $35 million to $45 million for the year?

And if so, how should we think about the progression over the next three quarters?

Hi, Michael.

I think that we are actually on track.

And you are right -- it is a volatile line on a quarterly basis.

It depends on the programming that is delivered.

But we are certainly on track for our expectations.

We're still -- we think the levels that we gave you in February are consistent with our (multiple speakers).

Okay.

And so in line with that also, your expectations for neutral to slightly accretive for all your television efforts -- that is still on track as well?

Yes, I think we've stated that our television initiatives continue to perform in line with our expectations.

Okay.

And last question, just on your movies, I think -- whether you have any updates there.

I think I heard G.I.

Joe 2 is in 2012.

I'd also heard some discussions about a Hasbro Factory movie; I don't know if there is any new comments you have.

In 2012, what we would currently confirm for you is our Star Wars Episode 1 in 3-D; The Avengers from Marvel and the Walt Disney Company; Battleship is coming in May; we have Spiderman coming as well; and G.I.

JOE 2; and on the slate as well as Ouija.

Those are the movies that we have slated for 2012.

Beyond 2012, a number of initiatives that are out there.

We are certainly excited -- I know Marvel has announced Iron Man 3 for 2013 already in May.

And we have a number of brands in development for 2013 and beyond.

Okay, great.

Thank you.

Robert Carroll, UBS.

Hi, everyone.

Just a quick question on pricing.

I know -- now that it's been a couple of months since, I guess, the February price increase was put in place, just want to see how receptive retailers have been to that, and if there has been any change lately.

We have been hearing some interesting comments from some of the larger retailers about -- I think the expression they used was sharing some of the pain around input costs.

I just wanted to see if -- how things were holding up on the pricing front.

Yes, I mean, I'm sort of surprised by the question, but it is not something [that I] have heard anything.

We took our price increases as planned, both in the US and around the world.

We generally took a little bit less than some of our competitors, I believe.

And we haven't had pushback from the retailers.

I think they understand that commodity costs are going up.

And they buy from a lot of other people, they do a lot of own label in toys, they do other categories, they understand that.

And I think they accept that the prices need to go up a bit to cover these costs.

And then a quick follow-up on an earlier question.

Around Transformers 3, based on where the order book is now for product, if you were to overlay that versus the 2009 -- I mean, based on your commentary, is it safe to say that the trajectory is looking as though it is a little bit higher than what it was in 2009?

You know, I don't want to -- I'm enthusiastic, but I don't want to guide you.

I will tell you I am very enthusiastic about the brand.

I am very enthusiastic about our plans.

The innovation in the product line is clear and apparent.

And we are going on all cylinders with our retailers globally, as well as with a number of licensed partners around the world, to make great retail statements.

And we certainly believe this movie will resonate with a full -- the full array of audience that you would expect for a big Transformers movie.

It is a really fun movie and filled with great characters and certainly great Transformers.

So I think that is about as far as I would go.

But suffice it to say it is a very exciting year for Transformers.

Great.

All right, thank you, everyone.

Margaret Whitfield, Sterne, Agee.

Good morning, everyone.

A few questions on inventory.

I wondered if you could quantify the dollar amount of carryover inventory at the Q1 level.

Also, give us some commentary on what you might expect for ending inventory in Q2.

And I know you mentioned your retail inventories were down; if you could give us some comment by major segment, and also what the sellthroughs are.

And if you could quantify the Easter shift on your business, that would be helpful as well.

Thank you.

So I don't think we are going to get into a deep analysis about exactly what (inaudible) in inventory.

Again, we've reiterated that a lot of it is to support growth in the business, a lot of it is in the newer markets that we are in, where you have to have some local language inventory.

Some of it is due to the fact that we are trying to level-load our vendors to ensure that we've got labor.

So I don't want to overdwell on inventory.

I think it will improve as the year goes on, but I'm not going to give a precise number for where we think it is going to be at the second quarter.

In terms of our POS, it is down a bit during the first quarter.

Clearly, part of that is due to the fact that Easter did come -- comes later this year.

So you would have had more both shipping in and POS performance related to an earlier Easter in the first quarter last year.

But to say exactly whether that is $5 million, $10 million, $6 million, $20 million, I don't think we really can be that smart.

Are your inventories at retail down in each segment?

And if you could give us some more color on why the Girls segment was down?

So, in terms of our retail of inventories, obviously, we don't get as good information around the world as we do in the US, particularly from our top four retailers.

From our top four retailers in the US, in terms of the current line, it is certainly down a little bit versus a year ago, which is good news.

I think when you talk about the Girls business, I mean, I think this first quarter, there was a retailer inventory issue not just with Hasbro but across the board.

And I think there is very few analysts or observers of the toy industry who didn't expect that the first quarter of 2011 was going to be a fairly tough year for manufacturers to get growth, given the retailer hangover.

And I think that is being reflected in all categories, with the exception of Boys, where we did have Beyblade and we did have some Transformers and we did have some early shipments of Thor, which were sort of able to break through that.

But as you look at the other categories, I don't think it is a problem of any of our lines; I think it is just part of a state of the industry.

Yes, Margaret, just to add to that, if you look, one of the major contributors in the first quarter in terms of growth year on year has been Furreal Friends.

We just recently launched a new My Little Pony line that is associated with the new animation.

That line is also now available in Canada, as we have put My Little Pony on the air on Treehouse, a network up in Canada; and we are already starting to see some positive indication there.

Littlest Pet Shop has a whole new line, as you saw in February, that is launching in the next couple of months.

So our Girls business over several quarters, if you take that perspective, is on track for our plan.

And again, as David indicated, I don't think the early months are indicative of where we see that business going longer term.

Thank you.

Gerrick Johnson, BMO Capital Markets.

Hi, good morning.

Your distribution agreement with Tomy, I think that is a 15-year agreement.

When does that expire?

I would have to check the date, Gerrick.

I don't recall right away.

But we can certainly check it.

We will get back to you.

Okay.

And on your TV program --.

Just to be clear, though, the distribution agreement on -- we're talking about for Japan, right?

Tomy's products that you distribute in the United States.

No, that's why -- I just wanted to ask and follow up.

No, we don't -- I mean, we don't really have any specific distribution agreement that goes the other direction.

I thought you were talking about the Japanese agreement with Tomy for our products and with Tomy Takara in Japan.

No, I was talking about things like Zoids, Beyblade, stuff like, that are Tomy's IT that you distribute in the United States and elsewhere.

Yes, we have specific contracts on products like that that are related each and every one of those different initiatives.

Okay, so each product line is its own agreement.

That's right.

I mean, in many cases you have other people, other great partners involved, like Nelvana in the case of Beyblade.

There are other people involved in those confederacies of groups of companies in other brand initiatives.

So it is not typically -- it is not an overarching deal; it is by property.

Okay, okay.

That makes things a little bit more clear.

Thank you.

As far as Hasbro Studios goes, what shows are returning to The Hub and which ones are not returning in the next upcoming season?

So we have five -- there are five seasons of shows that are returning -- Transformers Prime, My Little Pony, Friendship is Magic, the Adventures of Chuck and Friends, Family Game Night and Pound Puppies.

Okay.

The only one we have hit the pause button on just for the short term is G.I.

Joe, and that relates directly to having the G.I.

Joe 2 movie come out next year.

And we want to do follow-up animation based on the movie, so that it's just a decision we took to accentuate our plan for next year.

And then we have several new series, including a miniseries on Clue, a series called Blythe Loves Littlest Pet Shop, the Game of Life, Kaijudo, the Rise of the Duel Masters, Transformers Rescue Bots, which is oriented toward a slightly younger audience, and Scrabble Showdown.

So that is our lineup of shows for The Hub for this year.

Okay, great.

Thank you.

And Deb, in explaining the higher inventory, you mentioned that your factories overseas are level-loading.

Just help me explain how that works.

You buy finished goods, so shouldn't the inventory be on their books, not yours?

And if you are taking it from them early to help them out, are you getting a discount on that product?

We are actually -- in order to maintain the factory that we have and the labor rates that the factories provide, we are helping work with them and taking the inventory a little bit earlier on our book.

So, as David mentioned, where we might see more domestic inventory, in some of our international locations, they are taking the inventory a bit earlier.

And we kind of talked about this all throughout last year in each quarter, that we were having higher inventory levels because of this.

We found that really to ensure supply and the quality of supply, we are working with our vendors and taking that inventory in a little bit earlier.

So that is why you are seeing it on our books.

Okay, I understand.

Thank you.

And no commentary on Nerf.

Is Nerf up, down, sideways in the quarter?

Nerf is fairly -- maybe down a bit, but basically, as you would say, sideways in the quarter, in that we are gearing up for a big launch in Q3 around Vortex.

And I know you don't have yet a lot of visibility there, but it is a major launch for us, as well as a lot of other new Nerf products that come in the second half.

Having said that, the Barricade, which was our automatic firing blaster, has done exceedingly well globally, and we have a lot of products along those lines that have done well around the world.

In more and more countries, we are seeing great progress with NERF; it is part of the growth of our International markets.

Okay, and related to Nerf, the Super Soaker stuff is cobranded Nerf.

Do you still put that under the Super Soaker brand or is that considered Nerf now when you report in these segments?

No, we have -- Super Soaker is broken out, and in fact, you are right -- it is up significantly year over year.

It does carry the Nerf umbrella name, as well it now has a lot of the design elements as well as the innovation that we have been putting in the Nerf business.

The team has been working on the Super Soaker business.

And it gives us a great seasonal play, but that's separate than Nerf.

And again, as we said, year-over-year, significant gains.

All right, great.

That is clear.

And I am going to sneak one more in.

Games softness, is that the category being down, or how has your share been trending in that segment of business, particularly board games?

We are really not seeing big shift in the category in the first quarter.

Obviously, we are restaging that business and reinventing that business as we speak.

There are some bright spots within the first quarter, but not going to go through lists.

Having said that, again, we really feel very strongly that our brands are resonating.

If you look at our digital games business, it is actually up pretty significantly in the quarter.

So brands like Monopoly being played digitally and Scrabble being played digitally.

We have a number of off-the-board games that have continued to perform well.

And the board game business will launch a number of new initiatives in fall, including the LIVE platform.

So it is not a single-quarter solution, but a long-term plan to reinvent and reimagine that brand.

All right, got you.

Thanks a lot, guys.

Eric Handler, MKM Partners.

Hi, thanks for taking my question.

I know it is still early for The Hub, but I am just curious what type of uplift you are seeing for your brands on the retail side where you have product on the TV?

Well, we would only have one or two brands where we have -- had had product out in early stage -- at the time the shows went on the air.

In fact, My Little Pony was the only one that was out for any period of time, and only briefly.

What we are really seeing is My Little Pony show in Canada, where it has been on the air, and the product was out in time for the show, we are seeing acceleration of our business.

But again, it is still early days.

In the case of Transformers and several other brands, we really did not have product out.

We have let the brand launch as entertainment and will follow with products in the subsequent quarters.

Okay, thank you.

Greg Badishkanian, Citigroup.

Great, thanks.

Just kind of looking at the retail inventory levels.

I mean, those are -- are those pretty normal?

And then are the retailers expecting to do any above-average discounting or promotions to clear out inventories, or is it kind of just going to be kind of at a normalized level there?

I think, as we just said, we clearly recognized at year-end, coming into this year, retailers were overinventoried.

They had a mid-single-digit increase in their inventory of Hasbro products.

Now, coming out of the first quarter, we are saying that they are back in line with prior years.

Right, good.

And then just from a buying perspective, because there was a little bit -- how they kind of softened a little bit at the end.

How are the retailers and the buyers kind of approaching this year?

Are they a little bit more conservative, or are they doing anything different than maybe you have seen last year or the year before?

You know, I think I hit a little bit of that earlier.

I mean, clearly, the first quarter, I think they have been cautious.

They have been trying to work down the inventory.

As you look out to the balance of the year, I don't think they are going to be unduly cautious.

I think each retailer, the toy department, they want to be a growth department, they want to do well.

There is a huge amount of -- this should be a good year for the toy industry.

There is a lot of entertainment out there.

There is a lot of product, I think.

So I think retailers, and in particular the buyers and the people in the toy department, are looking for toys to be -- toys and games to be a strong category and help drive their growth.

Great.

And then just on costs.

Obviously, you got good price increases.

And we heard too as well that prices were kind of across the industry, across other manufacturers passing those on.

Does that cover all of the increase, especially recent rise in oil prices, so it is kind of a net neutral to margins?

The resin prices tend to rise in arrears of the oil prices.

And --

Well, one of the main points is that the way we buy is that once a vendor gives us a price, it is basically good for a year.

So to a large extent, we are insulated from short-term commodity movements.

Now, not so much on our shipping, but certainly in our product purchases.

Yes, but again, we had said we intend to maintain our high 50s gross margin for the year and we have priced accordingly.

Good, great.

Thank you very much.

Per Ostlund, Jefferies & Company.

Thanks.

Good morning, everybody.

Question on the Selling, Distribution and Administration line.

I know you kind of alluded to it in prepared remarks, and I can certainly appreciate that it has more of an impact on a seasonally smaller revenue quarter.

But wondering if you might be able to kind of parse through some of the moving parts that led to the rise year over year in absolute dollars.

If we look back at the fourth quarter, it was down $20 million plus, and then now here in the first, it is up a bit.

So just want to see if there is anything kind of specific to the first quarter and then how that projects out.

I think, Per, what you are really seeing is, again -- and we talked about from a percentage standpoint what we are really seeing is the impact of a lower revenue base in the first quarter versus the fourth quarter.

But from a dollar standpoint, it is really just bunches of small things.

We talked about our investment in installing our new SAP and shared service in Europe, which will lead to long-term efficiencies.

And that is probably a couple of million dollars there.

There is a few million dollars that we invested in Asia, in growing heads in Asia and Latin America and our studio.

So it is a few -- it is really just a few small things.

The other thing about the fourth quarter as well is that typically, that line has a lots of incentive pay in it, and that was down in the fourth quarter as our revenues were down on the full year.

So you are probably seeing a little bit of a lower amount in the fourth quarter from a pure dollars standpoint because of that.

Okay, that makes sense.

That is all I have.

Thanks.

Drew Crum, Stifel Nicolaus.

Thanks.

Good morning, everyone.

A couple of questions on the Boys business.

Brian, could you comment on Beyblades, how it is tracking year to date against the $300 million you did back in 2003?

What are your expectations for Marvel relative to 2008?

You had two films in 2008; you've got three films this year.

And then Star Wars is going to be re-released in early February.

I know we are looking out a couple quarters here, but will you be shipping product in the fourth quarter of 2011?

Just to clarify -- we have two great movies from Marvel this year, and then we have Spiderman next year, along with The Avengers.

So there is two great Marvel movies this year in Thor and in Captain America, not three.

But --.

(Multiple speakers) X-Men, right?

Yes, X-Men, true, but from Fox -- right?

Less product related to X-Men; certainly more related to Thor and to Captain America.

And we feel very good so far about what we have seen and very excited about the early offtake of Thor shipments at retail.

We have seen element of all the movies that they have and feel very good about what we are doing there.

I think long-term, we really like the Marvel business, and we are building plans together for greater success as we go forward for 2012 and 2013.

And Transformers, you know obviously, we have talked about the brand and feel very strongly that it is going to be a great Transformers year for the brand.

And obviously, we now have animation that is running on The Hub that will be in support of the brand after the movie, which we didn't have the last time around.

I'm not sure -- what was other part of the question?

The other part of the question was Beyblades, how it is tracking against the $300 million you did back in 2003 with that property.

And then Star Wars, it's an early 2012 film release.

Will you be shipping product in 2011 to support that?

So Beyblade, it really is -- the rate of the sale is very, very strong.

And obviously, we are trying to catch up.

We have more markets now as owned and operated markets than we had back the last time.

So we have a great opportunity to take advantage of that success of and the reinvention of Beyblade.

I can't comment specifically on the number.

But suffice it to say it is activated around the world.

We don't have the rights in certain Asian markets, but we have the rights everywhere else around the world.

And as we look at Star Wars for next year, I don't know whether it will -- the shipments at this point will fall in late 2011, some of the shipments, or come into 2012.

But certainly gearing up for a first-quarter 2012 launch of Star Wars product related to the motion picture.

So I think it is a little early to guide as to whether those shipments fall in 2011 or 2012.

Okay.

And you made the comment earlier about the advertising expense being down, given the amount of entertainment properties you have in the year.

If you segregate that, are you starting to get any benefit from leveraging The Hub and exploiting the properties on the network and move into any alternative sources of marketing?

I wanted to get your comments on that, and if you are seeing any benefit there, or when you would expect to see some benefit on that line.

Yes, I think what you would start to see is as we start to ship more product related to the brands, so the animation that is on the air and the programming that is on the air, which happen in the third and fourth quarter, not only domestically on The Hub but around the world, we have 20 plus markets around the world that will have Hasbro programming on the air.

We are already starting to see -- where we had programming and product launch early and simultaneously in Canada, we are already starting to see some indication of great progress on My Little Pony.

And, as we have talked about before, I think if you take the advertising line and royalty line together, it is a pretty good guide post for us.

Years where we have our royalty line go up a bit, we tend to have the advertising line go a little bit lower, and more toward the lower end of our historical range.

And I think that that is fairly consistent with what we are doing here in 2011.

Okay.

Last question for Deb.

Could you give us the cash balance overseas?

I don't actually have that in front of me, but I will say that we are in a high collection period in the US right now.

So it is probably a bit less than it typically is.

Okay, thanks, guys.

Tim Conder, Wells Fargo.

Thank you.

Most of the questions have been answered, but a couple here.

On the Nerf, you mentioned at the end of the last quarter that you were in a backlog situation with Nerf and then with Beyblade, but Nerf, your shipments were down a little bit.

Just -- does that mean that you have satisfied the near-term demand and then you continue to anticipate decent growth with all the new initiatives for Nerf in 2011?

Yes, it is really just about timing.

We have a lot of -- we have some lower-priced products that had shipped for the spring this year, products like the Barricade, in the springtime and going to more markets.

And we are gearing up for some major launches around the Nerf brand core, as well as Vortex as part of the Nerf brand, that will happen in the second half of the year.

So I think in the brand, it is just timing, and it is really a brand that has done particularly well, not only in the US, but around the world, as it has grown.

So no concerns there; actually very confident about the Nerf brand go forward.

Okay.

And then, Brian, when you were listing the movies in the earlier part of the call related to 2012, I'm assuming it was just slipped over -- but Battleship is still slated for 2012, correct?

Yes, I think I may have mentioned it -- maybe I said it quickly.

So, yes, in 2012 is Star Wars and Episode 2, The Avengers, Battleship, Spiderman, G.I.

Joe 2 and Ouija.

Those are the ones that are scheduled for release in 2012.

Okay, great.

And then again, not to beat the proverbial dead horse here, but on the inventories, David, would you anticipate -- I think you had alluded to that maybe in round number terms as a framework, you had about $65 million or so of excess at year-end on the Company books.

Would you anticipate that being normalized by year-end here, given that you will anniversary the China level-loading, you will have shipped a lot of the new products here?

But again, that was not in the excess.

But working down the games and the China level-loading sort of the anniversarying, would you anticipate that sort of normalizing, and would in that $300 million area be a good guesstimate target?

Well, certainly, I don't think we gave a number of [$65] million as a carryover; I don't think we have ever been that specific in terms of numbers.

But clearly, it is our objective to get down to a normalized level by year-end, and I don't see there is any reason why we couldn't.

I think somewhere, maybe a little bit above where it was at the end of 2009, recognizing that we've got a growing business and we are in more markets than we ever used to be.

So I think if we ended the year north of $300 million but not a lot above, that would be a pretty good position to be in.

Yes, I think if you follow up on what David is saying, if you look at the first quarter 2009, our inventory was about $300 million, and we didn't have the same number of international markets activated, nor did we have as much international momentum.

And we didn't have quite as many new initiatives planned for second and third quarter as we did -- in 2009 as we do in 2011.

So I think those are good guideposts.

Okay, and then last question here.

Deb, as it relates to the share repo, two pieces here.

What were the basic shares at the end of the quarter here -- the basic share count at 331?

And then on the cash, do you anticipate any need to repatriate and therefore any tax implications this year to repurchase what you guys sort of have in mind to repurchase for the year?

Tim, our outstanding shares at the end of the quarter were 136,804,470.

I was prepared for you to ask that question.

And certainly, we have continued to say that to the extent we have excess cash here in the US, it remains our plan to return it to our shareholders, either through dividends, which our Board just increased the dividend.

And that is going forward for first payment in the second quarter, when the normal payment schedule is.

And beyond that, we would continue to return it to our shareholders through share buyback.

Okay.

So at this point, you don't really see any change in your tax outlook as far as the need to repatriate cash for any of those corporate-related returns of capital?

That is correct.

Great.

Okay, thank you, all.

Thank you.

At this time, I would like to hand the floor back over to management for any closing comments.

Thank you.

We would like to thank 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 immediately following this call.

Have a great day.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you all for your participation.