孩之寶 (HAS) 2013 Q1 法說會逐字稿

Welcome to the Hasbro first quarter 2013 earnings conference call.

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

(Operator Instructions)

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.

Good morning, everyone.

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

Additionally, presentation slides containing information covered in today's Earnings Release and call are also available on our site.

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

Please note that, whenever we discuss earnings per share or EPS, we are referring to earnings per diluted share.

This morning, Brian Goldner, Hasbro's President and Chief Executive Officer and Deb Thomas, Hasbro's Chief Financial Officer, will review our financial results and discuss important factors impacting our performance.

Following their prepared remarks, Brian and Deb will be happy to field your questions.

Before we begin, please 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 plans, anticipated product performance, business opportunities, plans and strategies, costs and cost savings initiatives, financial goals and expectations for our future financial performance.

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

Some of those factors are set forth in our Annual Report on Form 10-K, our most recent 10-Q and today's press release and in our other public disclosures.

You should review such factors together with any forward-looking statements made on today's call.

We undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call.

I would now like to introduce Brian Goldner.

Brian?

Thank you, Debbie.

Good morning, everyone.

Thank you for joining us today.

As we outlined earlier this year, we are executing our plan to drive long-term, profitable growth across our brand blueprint globally.

This plan includes heightening our focus around our core franchise and partner brands, while aligning our resources and costs to streamline our business and to eliminate $100 million of expenses by 2015.

The first quarter of 2013 was a good start to the year and reflects the early results of these efforts.

We grew our business in the quarter, increasing our overall revenues 2% and our underlying operating profit 47%, absent restructuring charges.

We made decisions to streamline our organization and to focus on growth around fewer brands.

We are unlocking efficiencies and opportunity across Hasbro and for our brand portfolio globally.

In the quarter, the US and Canada segment posted 4% revenue growth and very strong growth and profits with an increase of 124%, absent charges.

The US business grew with reduced Hasbro and retail inventory that is of high quality, backed by solid pricing and execution.

The new team is doing a tremendous job improving profitability and strong execution in partnership with our retailers.

Inventories were down mid-teens at our top four US retailers.

Our international segment was flat but grew 1% absent a $3 million negative foreign exchange impact.

The emerging markets posted strong double-digit gains, with many countries including Brazil, China, Russia and Korea up significantly in the quarter.

Across regions, Latin America and Asia-Pacific revenues both increased at double-digit rates.

In Europe, the emerging markets including Russia and Eastern Europe remained very strong.

A few developed economies in Europe had difficult comparisons with both BEYBLADE and STAR WARS last year.

And the Boys category was down in the quarter.

However, all other categories grew and many brands including MARVEL, NERF, Play-Doh, FURBY, MY LITTLE PONY and MAGIC - THE GATHERING were up in Europe during the first quarter.

Looking at our product category performance in the first quarter, the Games, Girls and Preschool categories all posted year-over-year gains.

The vast majority of our franchise brands grew.

In our developed global economies, we had difficult comparisons in our Boys category with both BEYBLADE's and STAR WARS brands presenting challenging comparisons with the first quarter of last year.

As we have discussed in the past, BEYBLADE was a very strong brand for us, particularly internationally and continued be significant in 2012.

For 2013, we have all new product innovation and entertainment coming this fall.

Also in the first quarter of last year, STAR WARS shipments were up in support of the theatrical release of the Phantom Menace in 3D.

While this presents a difficult comparison, STAR WARS remains a perennial brand around the world and a priority for Hasbro.

We are constantly innovating across the STAR WARS brand.

We have several new initiatives launching this fall.

We're very excited about the plans LucasFilm and Disney have for STAR WARS across television and film.

There is tremendous talent working on the STAR WARS brand and developing it for future generations.

STAR WARS remains a very significant and important priority within our portfolio.

We look forward to the future with this great brand franchise.

Partially offsetting the difficult comparisons in Boys, we experienced growth in MARVEL, NERF and GI JOE products in the quarter.

At Toy Fair this year, we shared some of the global consumer research we fielded around the modern boy.

This research has informed the innovation and consumer experiences we have developed and are launching in 2013 for our Boys brands globally including several new innovations across our MARVEL business.

After a tremendous year in 2012, MARVEL and its studio licensees have several incredible films this year, as well as all new television programming to continue building the brands globally.

In support of the theatrical release, our new IRON MAN III product line reached retailer shelves in the US just in time for Easter and has already started hitting shelves internationally prior to the May movie release.

New WOLVERINE product will be on shelf starting this summer.

THOR - THE DARK WORLD product will hit store shelves this fall.

Our MARVEL revenues were up more than 20% in the first quarter.

While the comparisons for the full year will be challenging, there is tremendous amount of innovation in our line supporting both film and television, including our new IRON MAN III ASSEMBLERS and an entirely new ULTIMATE SPIDERMAN product line based on the animated series.

GI JOE is another brand within Boys which grew this quarter.

GI JOE - RETALIATION has performed well and to date has earned more than $270 million at the global box office.

Paramount has indicated they'll begin working on the third GI JOE movie.

We look forward to working closely with the studio and the film makers.

We are pleased with the strong reception to the film and interest in the brand globally.

Finally, in 2013, we've completely reinvented TRANSFORMERS across platforms, including a television series distributed globally, online and mobile Games, licensed products and a full line of new toys based on the all new TRANSFORMERS - BEAST HUNTERS theme.

Moving to our Games category, revenues grew 26% in the quarter.

This is a great start to 2013, supported by positive point of sale trends in the category in the US and in a number of markets globally.

Our franchise brand, MAGIC - THE GATHERING continues to perform well globally across all regions.

However, revenue growth in the Games category was not solely driven by MAGIC - THE GATHERING.

The reinvention of our Games business is being led by our Gaming Center of Excellence and the innovative, new brand initiatives they are developing around targeted consumer groups.

As a result, there were a number of brands and initiatives which grew within Games this quarter.

Boys Action Battling Games including ANGRY BIRDS - STAR WARS and TRANSFORMERS initiatives continue to resonate with consumers, nearly doubling revenues in the quarter.

The reinvention of the TWISTER brand with TWISTER RAVE in our Girls Gaming business drove growth again this quarter for the TWISTER brand.

Finally, we were all reminded of how much a part of our lives another one of our franchise brands, MONOPOLY, has and continues to be.

Our global Save Your Token campaign brought in votes from 185 countries, 10 million FaceBook fans and created 2 billion impressions, driving increased revenues in the quarter, with new versions of MONOPOLY due out later this year.

In our Girls category, several brands contributed to our 23% growth.

Notably, FURBY continues to be in high demand where it is launched.

FURBY is now also available in non-English speaking markets and selling very well.

In English speaking markets, FURBY - PARTY ROCKERS are at retail.

Our all new FURBY line will be available this fall.

MY LITTLE PONY also remains in high demand with more than 30% revenue growth globally across categories including licensed products and even greater point of sale growth in several markets.

Our Girls category also had positive contributions from ONE DIRECTION, CARE BEARS and EASY BAKE products.

As we continue its reinvention, our franchise brand, LITTLEST PET SHOP, did not grow in the quarter.

LITTLEST PET SHOP is supported by one of the top rated shows on The Hub Network in the US.

We will be launching television programming outside the US during 2013.

Our Gameloft app continues to be extremely successful.

We are integrating this digital play into the physical product.

We remain confident that with the investments we are making, LITTLEST PET SHOP will remain a top Girls brand globally and grow over time.

Finally, the Preschool category grew 8% in the first quarter.

This reflects our focus on initiatives where we believe we can deliver differentiated innovation as well as profitable growth.

This is evident in our newest franchise brand, PLAY-DOH.

PLAY-DOH is growing domestically and internationally.

Revenues were up more than 30% in the quarter.

We launched a whole new way to play with our new PLAY-DOH PLUS compound.

We are also supporting great entertainment brands including DISNEY PRINCESS, MARVEL and SESAME STREET.

Also within Preschool, our PLAYSKOOL HEROES line is leveraging great brands including TRANSFORMERS and MARVEL to deliver growth.

Having launched less than two years ago, PLAYSKOOL HEROES has performed extremely well, growing revenues and gaining share.

Across Hasbro, our teams are delivering the product innovation and rich story telling behind our brands and our partner's brands, necessary to fully leverage our brand blueprint across categories and geographies.

In closing, the first quarter was a positive start to 2013.

We have a number of exciting brand initiatives launching later this year and are encouraged by the reception to our spring initiatives and launches in key brands and categories.

Our focus on executing against our brand blueprint globally guides our decisions and actions, as we target long-term, profitable growth for Hasbro and enhanced returns for our shareholders.

Now, I would like to turn the call over to Deb.

Deb?

Thank you, Brian.

Good morning.

As Brian stated, we had a solid start to 2013.

We are pleased with our first quarter results.

We made gains both in revenues and profitability, absent restructuring, while delivering a very strong balance sheet and generating healthy cash flow.

All three of our major operating segments grew revenues, absent foreign exchange.

Three of our four product categories posted higher revenues.

The vast majority of our franchise brands grew year-over-year.

Our underlying operating profit, excluding restructuring charges, increased 47% over 2012.

Our global teams are very focused on the quality of execution in our business and ensuring revenue growth also drives profit growth.

Also impacting the quarter, last year's first quarter was a 14-week period.

At that time, we identified approximately $6 million of expenses associated with the extra week.

This year's first quarter is a 13-week period.

While the extra week in the first quarter has an impact on total expenses, it does not tend to have a material impact on revenues.

Absent the extra week and charges in both years, operating profits still grew more than 20%.

Our balance sheet was strong at quarter end, with $1.1 billion in cash, supported by the generation of $297.5 million in operating cash flow in the quarter and lower inventories versus last year.

While relatively small in significance in relation to our full year, our first quarter results are a good start to 2013.

Before we look at the quarterly results in more detail, I wanted to update you on our cost savings initiative.

During the fourth quarter, we began the implementation of a program targeting $100 million in annual savings by 2015.

To date, the focus of the initiative has been on an approximate 10% reduction in our workforce, including an early retirement program as well as working to ensure we have the right skill sets and talents to meet the needs of a global branded play Company.

The ultimate $100 million in targeted savings will come not only from workforce reductions, but also strategic process improvements, facility consolidation and expense reductions including our SKU reduction program.

During the first quarter, we recognized $28.9 million in pretax charges associated with this restructuring.

This equates to $0.14 per share.

Given a higher than expected participation rate in our early retirement program, we've revised our full year expected range of charges and now expect to incur charges of $30 million to $35 million this year, before any potential pension charges.

This higher participation rate gives us an opportunity to further rationalize our organization and add new talent to the business, particularly in our highest growth potential areas.

We anticipate pension charges could be as much as $10 million, but this depends solely on whether or not participants request a lump sum payout.

We will not know how many participants make this election and, therefore, how much the charge, if any, will be until likely the third or fourth quarter.

We also anticipate growth savings in the range of $45 million to $48 million for the year.

While both absolute amounts are higher than our original estimates at year-end, we estimate 2013 net savings of $13 million to $15 million before pension charges.

In addition to the $28.9 million of pretax restructuring charges this year, we also had $11.1 million of restructuring charges in the first quarter 2012.

The following discussion excludes restructuring charges in both periods.

A full breakdown of these charges by segment and by line item on the income statement was included in today's Earnings Release and on Slides 21 through 23 of the presentation.

Looking at our segment results for the quarter, the US and Canada segment net revenues increased 4%.

Growth in the Girls and Games categories more than offset declines in the Boys and Preschool categories.

The US and Canada segment reported 124% operating profit growth and an operating profit margin of 11% of revenues versus 5.1% last year.

This gain was driven by higher revenues, favorable product mix and profit improvement in the US, including savings from last year's first quarter restructuring.

In the international segment, revenues were flat, including a negative $3 million impact of foreign exchange.

Absent the impact of foreign exchange, international segment revenues grew 1%.

A few developed economies in Europe face difficult comparisons in Boys to 2012.

The European region declined 7%, despite growth in emerging markets including Russia and Eastern Europe.

This was offset by a 21% increase in Asia Pacific and a 17% increase in Latin America.

In total, our emerging markets grew 34% in the quarter.

Games, Girls and Preschool all increased internationally, but were offset by a decline in the Boys category.

The operating loss in the international segment increased by $1 million, primarily due to the lower revenue and operating profit in Europe.

The entertainment and licensing segment net revenues increased 5%, as we continue to benefit from higher sales of Hasbro's Studios television programming.

Operating profit in the segment declined $1.3 million.

This decline is primarily due to the mix of revenues and reflects an increase in program amortization versus last year.

Looking at our overall expenses, cost of sales as a percentage of revenue was essentially flat year-over-year.

Total operating expenses declined 1% or $2.7 million.

The decline came from lower overall costs due to a 13-week quarter in 2013 versus a 14-week quarter in 2012 and savings from workforce reductions in the first quarter 2012.

We also had lower royalty expense versus last year due to product mix.

These declines were partially offset by investment in innovation and consumer demand creation.

Product development, advertising and program amortization each increased modestly and were essentially in line with last year as a percentage of revenue.

Moving below operating profit, total nonoperating expense increased $6.5 million.

The year-over-year increase came from foreign currency losses in 2013, versus gains in the first quarter 2012 and investment losses this year versus gains last year.

Nonoperating expense also includes our 50% share of The Hub.

For the first quarter 2013, our share in The Hub Network was a loss of $1.1 million, compared to a loss of $1.8 million a year ago.

Our underlying tax rate for the first quarter 2013 was 26.4%, compared to an underlying tax rate of 26% in the first quarter 2012 and 27% for the full year 2012.

During the quarter, we had favorable tax adjustments of $5.5 million.

These adjustments were not unusual, but had a significant impact on the results of the quarter, given they came in the first quarter, when our earnings are historically at their lowest.

For the full year, this impact would not be significant.

We would not anticipate calling it out in our full year 2013 results.

For the quarter, average diluted shares were 129.3 million, compared to 129.6 million shares last year.

Similar to last year, when we also reported a loss in the first quarter, basic and diluted shares are the same.

If we had reported net earnings for the quarter, our average diluted shares would have been 130.9 million, versus 131.6 million a year ago.

Now let's turn to the balance sheet, which remains very healthy.

Our business continues to generate strong cash flows from operations.

During the quarter, we generated $297.5 million of operating cash flow.

For the trailing 12 months, operating cash flow was $547.5 million.

At quarter end, cash totaled $1.1 billion.

After strategic investments in our business, we continue to return cash to our shareholders through our dividend and buyback programs.

Our next dividend payment, the first reflecting the 11% increase approved by the Board in February, is scheduled for May 15.

We repurchased almost 520,000 shares during the quarter at a total cost of $20.2 million and an average price of $38.81 per share.

At quarter end, we had $107.1 million left on our share repurchase authorization.

Our intent is to continue repurchasing shares opportunistically against that authorization.

During the remainder of 2013, we have two royalty advances due MARVEL, a $30 million payment in May and a $50 million payment in July.

We also have our final guaranteed royalty payment of $25 million due to The Hub in November.

We're evaluating the appropriate level of cash to hold domestically and outside the US.

Our objective is to get the best return on this cash for our business and for our shareholders.

We're carefully reviewing our options.

Our receivables at quarter end were up 12%.

DSOs were 69 days versus 63 days last year.

Last year's DSO was abnormally low, due the extra week during the first quarter 2012 allowing for greater than normal collections.

Our current DSO of 69 days is more in line with historical trends for the first quarter.

Inventories declined $73 million versus last year on lower inventory levels, in all regions except Asia-Pacific, where inventories are up to support the growth in our emerging markets including China and Korea.

Compared to year-end, inventories increased slightly, up $7.7 million.

We remain committed to tightly managing inventory levels.

Overall, at Hasbro and at retail, our inventory is of high quality.

We're pleased with our start to 2013.

As an organization, Hasbro is focused on delivering profitable, long-term growth while driving innovation across our key brand initiatives and successfully executing our multi-year cost savings initiative.

We remain focused on smart decision making and leveraging our investments in executing our global brand blueprint.

Now, Brian and I are happy to take your questions.

(Operator Instructions)

Sean McGowan, Needham & Company.

A couple of questions, one's a quickie.

Deb, what would you say we should be expecting for the balance of the year as an underlying tax rate?

We would expect our underlying tax rate, Sean, to be consistent with what we said at year-end, somewhere between 26% and 27%.

Okay.

Thank you.

I think one of the things that may have come out of last year's presentation or the presentation rather at Toy Fair was just how big Magic is.

How much it's growing.

But personally I don't have a sense of how that product might be seasonally compared to the rest of the business.

Can you give us some sense of kind of the order of magnitude, I guess specifically would sales overall have been up excluding Magic, is it big enough to move the needle that much?

If you look at Magic, actually typically runs fairly flat quarter on quarter.

It's more release driven, meaning that new releases of characters that contribute to people's cards, to their collections and to their deck that they're then playing with, so it tends to be more release driven, based on the content that's put out in the market.

So less seasonal.

It's driven by a couple of different components.

There's a major online digital component and a mobile component now as well as the card based component that's sold at retail.

Remember that four-fifths of that retail is in non-NPD type retail stores, so a lot of hobby shots and lots of hobby shop playing.

We did talk about the fact that other parts of our Games business was up during the quarter.

There were several brands in Games that were up in the quarter.

Of course, our Girls business and Preschool and Games were all up.

Girls and Games were up significantly in the quarter.

So I think that it was certainly a contributor but we have a lot of good initiatives working in the first quarter for us.

Felicia Hendrix, Barclays.

Brian, quick question for you.

You had mentioned in your prepared remarks that POS was up for Games.

But I was just wondering, if you could talk about it more broadly across your entire product portfolio?

Sure.

If we look at US data, what we see is that POS was up significantly in Girls.

It was up significantly in Games and up well in Preschool.

For obvious reasons, down in Boys.

If you look at the overall POS, really in line with inventories was -- fared far better than our inventory reduction.

Our inventories were down mid-teens in the US.

Our own inventory, as you know, is down 18%, despite being up in Asia-Pacific.

So we feel very good about what is an early quarter, obviously, a less important quarter for the year.

Okay.

Just to be clear.

You said the point of sales was up better than your inventory reduction.

That's inclusive of Boys?

Correct.

Okay.

Thank you.

Deb, on accounts receivable, would you say that the entire release was due to the tough comp's of having an extra collection day last year?

That's by far the biggest piece of it, Felicia.

We said that, if you look back at historical trends the first quarter for, say, the last five years, it tends to be around that 69 day period.

We've been decreasing slightly as of the past.

But we're adding a little bit of extra days because of the longer term receivables as we grow in places like Brazil, where we had growth again this quarter, that has a slightly longer -- but the majority of it was from extra collections.

So, if you look at that average, that's the best way to look at the DSO.

Yes.

So we had one extra week of collections last year.

Right.

Thank you.

Helpful.

Last -- final question.

Brian, just on FURBY, has that rolled out in all the international countries yet?

If not, can you just walk us through the schedule?

It's rolling out right now in non-English speaking countries.

As you know, last year, we launched an English speaking in the second half of the year -- actually fourth quarter mostly.

Then throughout the year, it's going to roll out in multiple languages, including lots of markets where we have set up emerging markets teams since the last FURBY launch.

So you'll see, certainly, FURBY in Brazil and in Russia and Korea and rolling into China.

So again, FURBY will go worldwide throughout the year.

Okay.

By the end of the year it will be all rolled out?

It will be everywhere.

Then we have a brand-new FURBY and FURBY line coming.

We've not said much about that publicly except this morning, we did note that in English speaking countries, we'll roll out our -- call it, FURBY 2.0.

Tim Conder, Wells Fargo.

A good start to the year, everyone.

Just a couple things here.

Deb, can you give us any savings, gross or net, in the quarter, just as more of a housekeeping item?

Then, Brian, in Brazil, a competitor mentioned last week that the industry as a whole, the channel inventories were a little elevated.

Those were being worked through.

Can you give us some color on Brazil from your perspective?

Sure.

Our Brazilian business was up significantly.

The industry is up.

Trends in the industry are quite strong, albeit a little bit more muted in the economic environment, but still up quite strongly.

You're talking retail; correct?

Correct.

Retail inventory was up.

Our business was up.

We gained a number of share points, in fact, something like 2.1 percentage points of share in Brazil.

Our business is doing quite well.

The team down there is doing a great job.

Our franchise brands are performing quite well in Brazil, across the board, as well as our partner's brands in entertainment.

So Brazil continues to be a high growth market for us.

In combination with our other emerging markets, we grew emerging markets in the quarter by 34%.

Okay.

As for the savings, Tim, as we had mentioned, we had $28 million worth of costs in the quarter.

We expect the majority of the gross savings that we talked about for the year to really come from the second quarter on.

Okay.

So basically nothing gross or net from the savings perspective in the first quarter?

Well, we did have some savings, as we mentioned, in the first quarter in the US and Canada division, from their restructuring that they did in the first quarter of 2011.

So what you're seeing in underlying results, which is why we tried to split that out, is really the benefits we're getting from what we did last year.

We'll see more of what we did this year later this year.

Okay.

Great.

Okay.

So Tim, let me just say that what we saw -- the US business has sort of returned to historical levels of operating profit margin this year.

The underlying operating profit in that segment was 11% up against 5.1% a year ago.

That's really the -- that first quarter last year was when we saw those -- when we start to see those savings versus this year.

Then from the new restructuring program, Deb, just to clarify, as you mentioned that will start, savings will start kicking in Q2 here?

Yes, they'll start to kick in Q2.

We talked about -- the reason for the increase in our costs was really related to a higher than expected acceptance of our voluntary retirement program.

So obviously we have a few of those people who are staggering throughout the year.

That's why we have been very clear to say we are -- we remain firmly on track to achieve our $100 million in expense reductions by 2015.

So we just want to be clear, we're on track to achieve that still.

Michael Kelter, Goldman Sachs.

Maybe the first thing, just to follow up on what you were just talking about.

Can you maybe talk us through a timeline of the labor reductions a little more granularly?

I ask, only because SG&A of about $188 million in the quarter is in line with the last few years despite the reductions in labor.

That -- I thought started several months back.

So, I just wanted to get a better understanding of the timeline.

Yes.

We created the program -- worked on the program toward fourth quarter of last year.

We identified the first round of savings in the quarter and had made a plan, although none of the reductions began to take place until the first quarter 2013 in the absolute -- maybe a few people.

But the first quarter was when we began and offered the voluntary retirement program.

We had a significant uptake on that program, in addition, other changes to the organizations.

That's happened globally.

So this quarter is when the changes predominantly have happened around the Company and around the world.

There are some people in the voluntary retirement program that will leave throughout the year.

So not everyone will leave -- or has left in the first quarter, so that's planned out throughout the year.

It is approximately a 10% net reduction in heads.

We are also hiring in certain key areas where we see high growth potential.

So that's always part of our plan.

As I mentioned earlier, if you look back over the last decade, while we've added hundreds of people to our international organization, to our licensing capabilities and IP creation capabilities, our headcount has remained flat from late 2000 until 2012.

So this is really another change that enables us to bring in talent in new high growth areas.

That's very helpful.

Then you said in your prepared remarks that you were carefully reviewing your options with respect to the cash balances.

Maybe you could review with us what you see as your primary options?

What the positives and negatives are of those options?

Sure.

Well, we have been clear that -- most of our cash, again, at the end of this quarter is overseas.

We continue looking at what to do with that cash.

We continue to generate.

We said, we generated $297.5 million of operating cash flow in the quarter, just from our business and almost $550 million over the last 12 months.

So we continue to generate enough cash and have sufficient borrowing capacities through our commercial paper program to fund our business.

So we're not worried about funding our business or paying our dividend.

But we do look at -- we could at any time bring that cash back to the US, should we need it.

But we don't, because we have sufficient capacity to run our business else wise.

But we believe that by the investments we've made that we're providing a greater return to our shareholders.

If you look at our emerging markets and those investments, they've paid off in 34% revenue growth in the quarter and increasing profitability to the Company.

We look at that for the long-term for the shareholders.

But we do remain committed to returning the excess cash to our shareholders.

Our Board just announced an 11% increase in the quarterly dividend this year, which the first payment of that is in May.

We continue to target our payout ratio of about 45% to 50%, which in 2013 will be impacted a little bit because our Board had paid our normal February dividend in December.

So while we keep looking at that, we're looking at the most effective way to utilize that cash for the best return for our shareholders.

You're strongly considering repatriating, is that what I should be hearing?

Well, we're looking at strategies on how best to repatriate, given that we want to do that in a tax effective manner.

Then one last thing.

The Hub is still running at a loss, despite the improvement in ratings that you guys have seen.

What will it take for that to turn to positive?

I think that we are in a position right now where this is about the kinds of investments that we've made to grow our ratings, frankly in the backdrop where other networks are not growing their ratings or they're going backward.

So we've made investments in marketing.

We've made investments in programming.

So we are looking at what the right pivot point will be in order to begin to generate operating profit within the network.

But we're all committed to the idea, as we had mentioned earlier of a long-term, profitable network that was also a great competitor in the marketplace.

So we're reaching that -- those points.

We're looking at when the right time to make that pivot would be.

Eric Handler, MKM Partners.

When you look at your inventories -- your inventories have been down now on a year-over-year basis for, I believe, five or six quarters.

Should we look at these -- are these just permanent decreases now?

Or do you get a sense from retailers that, if the economy starts showing more significant signs of improvement that they'd be willing to allocate more shelf space to toys?

Or just talk about some of the retail dynamics that are going on right now.

If you look outside the US, our business in Latin America and Asia-Pacific continues to grow.

Our retail shelf space continues to improve.

Across several segments or categories, across Europe, our business is improving.

The biggest difference in European sales in the quarter really have to do, first and foremost, with BEYBLADE.

BEYBLADE is a kind of over-developed relative to European business, particularly in markets like Germany and France and then secondarily STAR WARS.

So in fact, it's really more brand comparisons than it's about an economic environment or a retailer's commitment to toys.

The kinds of sales that we're seeing in Girls, the new initiatives we have planned for Girls and Preschool and Games and also for Boys for the second half of the year positions us very well in terms of retail shelf space.

What we've really done is manage our inventories to enable us to bring more inventory in, in time for consumer demand and more in line with consumer demand.

That was a stated strategy we had that we executed a year ago.

I think we then work from there with this new template or this new model as our plan, go-forward.

Okay.

Then as far as the Easter season is concerned, granted that it's a US-centric type of selling season, was there any significant benefit from having that in the first quarter?

Does that sort of reverse out in the second quarter?

No, I don't think that there's a significant benefit for our business now, given that 51% of our business in the quarter was outside the US.

Jaime Katz, Morningstar.

I guess, can you talk a little about Preschool and what you guys think you've done really well in that?

Because it appears it's grown pretty strongly in the quarter.

Well, we take a very broad portfolio approach within our key franchise brands there.

So they're really two major brands that are developed in there for us.

One is the PLAY-DOH business that we continue to drive globally.

It's a great brand for us globally.

It's growing significantly and growing, really, in every region around the world.

It is a brand that hits a lot of the key critical milestones that global parents really enjoy.

It's a brand where if you go to Turkey or Brazil or China, parents really are in favor of the creativity that PLAY-DOH provides.

We've launched lots of new products, innovations, as well have partnered with some great partners in DISNEY and MARVEL and others to continue to expand brand offering.

In PLAYSKOOL, we've really identified this idea of characters.

PLAYSKOOL HEROES is a segment of our business that's becoming more major over time.

We launched it just a couple years ago.

It's really beginning to accelerate as we go out around the world.

It's led by both TRANSFORMERS as well as MARVEL properties.

It's a great insight for us as we look at global Boys and the opportunity to give Boys their first action heroes that are consistent with things their parents feel good about.

So we've got kind of a couple segments there that are really key drivers for us.

Was there any like new marketing program that you had going with any of these brands in the quarter?

Across all of those, we have great marketing programs.

In support of the PLAYSKOOL HEROES line, we have a great TV show that's going out around the world in TRANSFORMERS Rescue Bots.

In PLAY-DOH, we have a show that's launched now in China known as [Pele-doh] or loosely translated as, elf in the can.

It's a really fun, imaginative show.

It's a great Preschool show that's been done in partnership with Chinese television.

Then, can you finally just remind us, is there any specific pricing increases that you guys took this quarter?

I can't recall if you had offered that at the Analyst Day.

Yes.

Overall, our pricing is probably up low to mid single-digits, but remember that we have -- that's really on carryover items.

On new items, we are able to take the pricing up on carryover.

Then on new items, we price for whatever that cost increase -- primarily the cost increases we're seeing are in labor.

Right, Brian.

I think we took that low single-digit price increase already in the US.

We have the low single-digit price increase outside the US more a little bit in the second quarter -- early in the second quarter.

Drew Crum, Stifel.

So Deb, I wonder if you could comment on the gross margin.

It looks like it's 61%, near a five-year high.

As you look at the balance of 2013, how are you thinking about that line?

What are some of the puts and takes on gross margin as you look at the next couple quarters?

Sure.

Good morning, Drew.

We had talked about at Toy Fair that, we expected the level of gross margin we had for the full year 2012 to be sustainable.

As Brian just mentioned, we priced to recover the costs of the product.

We continue to believe that our gross margins on that full year basis would be sustainable.

Now, every quarter it can be a little bit different dependent upon product mix.

But what we're seeing is with cleaner inventory at Hasbro and lower inventory at retail, we have less in the way of close-outs and mark-downs.

For many reasons, that's really why we believe that those levels are sustainable.

Okay, great.

Then, Brian, you specifically called out the performance of LITTLEST PET SHOP in the quarter.

The ratings on that show on The Hub have been quite strong.

Are you still tracking on plan with respect to the product launch in support of that program?

Is this a brand that we should expect to grow for Girls in 2013?

The last part of your question, I really won't answer.

But I will tell you that over the long-term, the reason we called it out, was the vast majority of our franchise brands grew in the quarter.

We wanted to highlight that LITTLEST PET SHOP is on a track very similar to what we did with MY LITTLE PONY a few years ago.

It does take a bit of time to create the story telling, to create a really great television series that is getting very high ratings.

So, thanks for noticing that.

That show is now rolling out around the world.

The product line follows, as well we'll license products.

Our Gameloft relationship is quite successful there as well.

We've had millions of Girls downloading their Gameloft app game for LITTLEST PET SHOP.

So, we're going to connect up all of the digital and analog play patterns in the product line.

It will launch late this year and into 2014.

So, we feel like we're on track long-term to regrow that brand.

Okay.

Now last question, can you remind us the nature of the MARVEL royalty payments and the timing as to when those flow through the cash flow statements?

Yes.

Go ahead.

Sure.

We have a couple of advances left to do on the MARVEL agreement for this year.

We did want to call them out because they're a larger payment.

So, we have $30 million due in May.

We have another $50 million due MARVEL in July.

So, that's really the timing of that.

Just to remind you as well, the final payment of our guarantee to The Hub, the $25 million will be in November of this year.

Gerrick Johnson, BMO.

First, I just want to clarify your answer to Felicia's point of sale question.

Did you say down a little bit less than inventories in the US and Canada?

Yes, correct.

The POS is down less than inventory overall.

Strong growth in POS in Games, in Girls and Preschool.

Not surprisingly, Boys POS was down in the quarter.

The inventory you're referencing is retail down mid-teens?

Correct.

Is there any impact to be expected on the bottom line from any participation in GI JOE and the box office there?

You know what?

We'll have to see over the longer term, just how that looks.

Obviously, we do participate a bit in the box office.

We're also very excited about the long-term opportunity with that brand.

Kind of an update over the weekend, we saw the great box office results coming out of China.

Now, the global box office is over $300 million.

We're up significantly in major emerging markets.

As we talked about, the box office there around emerging markets has grown dramatically, particularly for 3D.

So great box office results in China, in Russia, Brazil.

It portends great things for the brand longer term.

Okay, great.

Production amortization, that was up $2.5 million in the quarter.

But that had declined in the fourth quarter by about almost $2 million.

Why the swing there?

I think it's about timing of -- that particular swing is about kind of timing of delivery of programming.

So as we mentioned at year-end, our ultimate revenues had increased which is what had lowered our overall amortization expense.

But we delivered and started airing THE LITTLEST PET SHOP and other programs this year.

So, it's just a timing issue.

Okay.

Deb, on the fourth quarter call you said that there would be restructuring charges of $20 million to $30 million and that range was wide because there could be some pension costs included in that.

Now you've raised and expanded that range and now calling pension out as something that could be incremental to that.

Could you just go through the thought process between what you said then and now?

Sure.

Well, as we mentioned, we had -- I think we said $25 million to $30 million in additional costs at year-end.

We did have some pension expense in the first quarter of this year, which what is we could anticipate at the time.

We said, we now expect to have costs of $30 million to $35 million, which obviously we had a large -- for the full year, we had a large portion of that in the first quarter.

That was really due to the higher than anticipated participation rate in our involuntary -- in our voluntary termination program.

So we had a lot more people elect to take early retirement than we had anticipated.

So that's really the primary driver.

We continue to see -- I mentioned last year-end, it would be difficult to predict exactly how much of the potential non-cash pension charges that are left to come.

We anticipate it could be as much as $10 million.

But it really is dependent on how many of those participants in the voluntary retirement program take lump sum payments.

So if a lot take lump sum payments and the majority take lump sum payments this year, we could see an additional $10 million of expense associated with this.

If only a few do, we may see nothing.

So, that's why it's -- we wanted to let you know what the potential could be.

We'll obviously call it out when it happens.

But right now we can't say with certainty exactly how much the amount will be.

Gerrick, if you look, the corollary is the savings.

The savings rate has gone up versus our estimates having to do with more people taking the voluntary program.

So the savings rate we now expect for the year is $45 million to $48 million.

Okay.

But that still equates to $100 million by 2015?

Yes.

So if you took out -- if you look at it, we've identified already nearly half of that in 2013.

We're running at that rate.

Then obviously there's 2014 interim year to get you to 2015.

Okay.

Great.

Just one little quick one here.

Do you guys have the licensing rights to the American Greetings brands worldwide, CARE BEARS, STRAWBERRY SHORTCAKE?

We share those with them, yes.

Share those?

What does that mean?

We have -- we share the licensing income from the licensing of those brands.

Okay.

You're asking about licensing.

You're not talking -- the toy rights we have now.

We may look at having other people do some of those brands over time.

We've had those conversations.

It's similar to what -- so we had --

I was talking about CARE BEARS and the American Greetings owned IP.

Yes.

We're selling those toys.

Okay.

Great.

But I thought you were asking about licensing income.

Licensing income, we actually split with American Greetings.

Right.

Okay.

Good to know too.

John Taylor, Arcadia Investment.

I've got a couple of questions too.

Could you -- for those of us who aren't paying that close attention to ONE [DIMENSION], could you talk a little about the cadence of kind of what their visibility looks like this year, TV or concert tour, that kind of thing?

How you're thinking about shipments of that line?

Sure.

ONE DIRECTION contributed to the quarter.

Obviously, we had brands like MY LITTLE PONY and FURBY also contribute significantly to the quarter.

ONE DIRECTION has a movie planned for the end of August this year.

Obviously, I'm sure tons of publicity around their concert tours.

But the one, I would call it kind of a major piece of entertainment, is a movie that's planned for the end of August.

Okay.

Aren't they touring, though, as well?

Yes.

This year?

Yes.

Correct.

That's what I said, yes.

Okay.

They have a number of tours and around those tours, there's a lot of publicity.

The fans know where they're going.

Okay.

Cool.

Okay.

I guess I missed that one.

As I recall in first quarter last year, TRANSFORMERS had eroded at a, kind of, at a lesser rate than what we typically think of as a minus 50.

So, I wondered, could you hang any number -- give us any sense of what TRANSFORMER did in the second year off the movie this time versus the last time?

Yes.

TRANSFORMERS in the quarter was relatively flat.

We're transitioning out of what was last year mostly an entertainment-led, television-led business.

We're transitioning into the whole TRANSFORMER - BEAST HUNTER re-imagination and new TV series, which really launches just now and products start rolling out throughout the year.

TRANSFORMERS, as you know, is a very strong international brand for us.

So we saw, again, a roughly flat business as we come out of one product line and into another.

Okay.

Good.

Then last question, on the Boys side -- so you're seeing strength with ANGRY BIRDS and some of the Action Games for Boys.

In your mind, is there any sort of cannibalization that might be happening between that and BEYBLADE?

Since BEYBLADE is essentially an Action Game as well?

We're not really seeing anything that I could point to JT.

The play pattern, using both the Jenga brand and standalone TRANSFORMERS and STAR WARS is really, it's fun, off-the-board kind of Games, building and smashing type of Games.

TRANSFORMERS, the BOT SHOTS brand has been great and a very different play pattern than BEYBLADE.

BEYBLADE has held up well in some markets like the US and several other markets in Europe.

It just happened to be such a big part of certain regions or certain countries' business a year ago that the comparisons are pretty challenging.

Sorry.

I was going to say, any difference in the age focus of those kinds of things?

Again, I think what we're seeing with kids is where they're able to find app's, they like playing the app's.

But where we're able to bring new play to brands and Games, we're able to get paid for that play.

So, the idea of being able to build a set that you're then able to break apart with ANGRY BIRDS.

Or in TWISTER for Girls, where you're able to really change the nature of the Game from just the dots to TWISTER RAVE, which is now using elements like skip it and other light -- fun, light dancing elements.

That reinvention is certainly contributing to the growth of that brand.

So again, it's playing in ways you just can't play in a digital game.

Michael Swartz, SunTrust.

Just sticking with the Boys business, I guess given the decline in the first quarter and knowing it's early in the year, I guess what in particular gives you comfort that business can grow this year?

I don't think we've ever said that the business would or wouldn't grow or that any category would or wouldn't grow, nor have we talked about whether we would grow.

We're really sort of setting up the year in major initiatives.

I think the second half of the year has lots of new initiatives across every one of our categories.

We're just pleased with the progress we've made in the first quarter, as we're seeing some of our spring initiatives take hold.

I think it's a good start to the year.

Then just with regards to the gross margin.

I know it's not kind of the heart of the production cycle yet.

But could you maybe outline some of the puts and takes there on maybe input costs or freight or anything to that extent?

I think the one area where you're seeing input cost change is in labor.

There was a 7% labor rate increase that was accepted by the ShenZhen government.

There's another labor increase across the region that will come in later in the year.

So I think as you see cost pressures, it's really related to labor.

Some of the labor shortages we've seen have started to reverse a bit as the economic environment in China has cooled a little bit.

But still I think labor will become the big watch word for the year.

The other input costs in ABS and paper board go up and down by quarter and tend to run in arrears -- especially ABS and resin, in arrears to oil prices.

Thank you.

There are no further questions at this time.

I'll turn the floor back to Management for closing comments.

Thank you to 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 following this call.

From an investor communications perspective, we will be presenting at the Barclays Retail and Consumer Discretionary Conference next week.

A webcast will be accessible through our Investor Relations site for those that are unable to attend in person.

Finally, please save the date of September 10 for Hasbro's Investor Day.

We will be holding the event in New York this year.

We will provide more details as the date approaches.

Thank you.

Have a good day.

This concludes today's teleconference.

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