孩之寶 (HAS) 2015 Q1 法說會逐字稿

Good morning, and welcome to the Hasbro first-quarter 2015 earnings conference call.

(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, and good morning, everyone.

Joining me this morning are Brian Goldner, Hasbro's President and Chief Executive Officer, and Deb Thomas, Hasbro's Chief Financial Officer.

Today, we will begin with Brian and Deb providing commentary on the Company's performance, and then we will take your questions.

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.

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

Today's discussion of net earnings and EPS will exclude from last year's first quarter results, a favorable tax adjustment of $13.5 million or $0.10 per share, as it does not speak to the underlying performance of Hasbro.

We have included a reconciliation to reported amounts in the earnings release and presentation accompanying this call.

Before we begin, I would like to remind you 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, the potential impact of foreign exchange translation, costs, our 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, in 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, and thank you for joining us today.

The momentum with which we exited 2014 has carried forward into 2015, delivering a strong first quarter and a good start to the year.

First-quarter revenues grew 5%, operating profit increased 25%, and our adjusted net earnings were up 43%.

Our focus on Hasbro franchise brands continued to drive our performance, as each of these seven brands increased year-over-year, and delivered in total 20% revenue growth.

We also drove strong underlying demand across geographic regions.

The US and Canada segment grew revenues 2%, and absent the negative $61 million impact of foreign exchange, the international segment grew 20%, including revenue gains in each geographic region.

Additionally, as reported, emerging market revenues increased 3%, but absent the negative impact of foreign exchange, they increased approximately 25%.

Our focus on creating the world's best play experiences is building strong demand for Hasbro brands and our partner brands around the world.

Point of sale was positive in every major market we track, including the US, Canada, UK, Germany and Australia.

For the first quarter, boys category revenues grew 10%, games increased 7%, and preschool gained 22%.

The girls category revenues declined 16%.

As we outlined previously, this decline was primarily the result of challenging comparisons in Furby, which will remain difficult throughout the year.

Each of our franchise brands grew, as did several entertainment-led brands, including Marvel, in support of the first quarter on-shelf date for The Avengers: Age of Ultron product, and initial shipments of Jurassic World.

While we are pleased with these favorable trends and strong momentum in our Business, there are several additional factors unique to the first quarter.

These elements, combined with the fact that the first quarter is our smallest revenue quarter of the year, had a very positive impact on our results.

At 8% of our total quarterly revenues, our entertainment and licensing segment represented a greater than normal percentage of our total revenue mix.

First quarter licensing revenue is in part the payment of royalties based on fourth-quarter holiday sales.

Also, within the entertainment and licensing segment were higher programming revenues associated with a multi-year digital streaming deal for Hasbro Studio's programs.

This revenue is recorded when we deliver the programming, and reflects several seasons of shows.

You may recall, in 2012 we would discuss with you a similar benefit.

The growth in our entertainment and licensing segment was combined with a strong quarter for franchise brands, including Magic: The Gathering, leading to a very favorable revenue mix in respect to profitability.

Magic: The Gathering continues to engage its fans around the world.

In the first quarter, it benefited from the earlier release date of the third release in the Khans block, versus the third release of the Theros block, which occurred in the second quarter of last year.

Additionally, favorable foreign exchange product cost hedges aided our profitability for the quarter.

Each of these factors helped offset the negative impact of foreign exchange to our earnings, which will continue to be a challenge throughout 2015.

As we look ahead to the remainder of the year, there are several additional factors to consider.

First, the benefit from Easter was almost entirely in the first quarter of this year, whereas in 2014, it was two weeks later in the month of April.

Additionally, 2014 had two very significant motion pictures in the summer months, Transformers: Age of Extinction and The Amazing Spider-Man 2. Both of these film benefited from shipments in the first half of the year.

In 2015, there's a tremendous film slate we are supporting, headlined by The Avengers: Age of Ultron in theaters on May 1, and Star Wars: The Force Awakens on December 18.

These release dates are spread across a greater period of time versus last years' concentrated timing of summer releases.

There are also several other notable films this year, including Jurassic World on June 12, Ant-Man on July 17, and our own Jem and the Holograms on October 23.

Our first-quarter performance reinforces that our strategy, and our approach to brand building is working.

For the full year, our teams are delivering innovative brands, and executing against a robust entertainment slate, while facing a difficult foreign exchange environment.

As we continue to invest around our brand blueprint, beginning with consumer insights to develop the right innovation, and story telling to engage the consumer across all forms and formats, the Hasbro team is delivering truly differentiated and compelling play experiences for consumers around the world.

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

Deb?

Thank you, Brian, and good morning, everyone.

Our first quarter was a good quarter, highlighted by the strength of our Business across brands and geographies.

The momentum in our franchise brands, coupled with the growth in our entertainment and licensing segment, delivered both revenue and profitability improvements for the quarter.

While foreign exchange had a significant impact on revenues, the favorable revenue mix, and our efforts to hedge our exposure limited its impact on profitability.

This momentum in our Business and our improved profitability enabled us to generate $315 million of operating cash flow.

Our balance sheet is healthy, and we ended the quarter with $1.1 billion in cash.

We continued to invest in our Business to strengthen our brands and improve the productivity of our global teams.

We also remained committed to returning excess cash to our shareholders.

In the first quarter, we returned approximately $79 million through our dividend and buyback programs.

Looking at our segments for the first quarter, revenue in the US and Canada segment increased 2%.

Growth in the boys, games, and preschool categories more than offset a decline in the girls category.

This growth was driven by higher revenues in our franchise brands, as well as growth in Marvel, in support of the Avengers: Age of Ultron and initial shipments of Jurassic World.

Point of sale is off to a positive start in 2015, including strong growth in franchise brands.

Our retail inventory continues to be of both good quality and good levels.

Operating profit in the US and Canada segment increased 16%, reflecting the favorable impact of higher franchise brand revenues.

In the international segment, revenues were flat with last year.

Europe was down 6%, but was offset by 8% growth in Latin America, and 17% in Asia-Pacific.

Emerging market revenues increased 3%.

The boys and preschool category revenues grew, but were offset by a decline in the games and girls categories.

As in the US and Canada segments, strong growth in Hasbro franchise brands was further supported by growth in Marvel products.

Absent the impact of foreign exchange, international segment revenues grew 20%, and emerging markets grew approximately 25%.

80%, or $50 million of the foreign exchange impact to revenues, was in Europe.

Absent FX, Europe grew 19%, and Latin America and Asia-Pacific each grew 23%.

Operating profit in the international segment declined $511,000, reflecting the negative impact of foreign exchange.

Absent this impact, operating profit increased to $5.5 million, compared with $2.4 million a year ago.

Finally, revenues grew 74% in the entertainment and licensing segment.

This strong performance was the result of growth in lifestyle licensing revenues for Hasbro franchise brands, notably My Little Pony and Transformers, as well as the contribution of a multi-year digital streaming deal for Hasbro Studios programming.

These increased revenues drove a $10.4 million increase in the entertainment and licensing segment operating profit.

Looking at Hasbro overall, in February, I shared with you our outlook for cost and expenses for the full-year 2015, using our underlying historical results as a basis for comparison.

We've included the slide from Toy Fair in the presentation accompanying today's call, which is available for on website.

Keeping in mind that the first quarter is our smallest revenue quarter of the year, and small changes have a bigger impact in the quarter than they would on an annual basis, our first-quarter results keep us on track to achieve the previously stated targets.

Overall in the first quarter, strong revenue growth in higher margin brands and segments, namely franchise brands, including Magic: The Gathering, and the entertainment and licensing segment, more than offset the negative impact of foreign currency translation.

This favorable mix resulted in cost of sales as a percentage of revenue decreasing to 34.7%, versus 38.1% in 2014.

For the full year, we continue to target cost of sales as a percentage of revenue, approximately in line with 2014's level of 39.7%.

With the growth in entertainment backed revenues, in particular Marvel and Jurassic World, royalty expense increased to 8.3% of revenues.

Given the lower level of revenues in the first quarter, this percentage is higher than our full year outlook for royalties, which, given the strong entertainment slate in 2015, remains in line with last year's rate of 7.2%.

Product development increased in the quarter to 7.3% of revenues, as we're investing in the development of the Disney Princess and Frozen properties, which will come to market in 2016, as well as incremental investments in our brands, including Magic: The Gathering.

Our full-year expectation is that product development will be in the range of 5% to 5.5% of revenues.

Advertising in the first quarter remained at similar dollar levels year-over-year, but declined slightly as a percent of revenue to 9.5%.

For the full year, we anticipate advertising at approximately 10% of revenues, which is the low end of our traditional advertising range, and reflects our continued investment in brand building, coupled with the efficiencies we're gaining from our global and increasingly digital advertising model.

Intangible amortization declined in the quarter, and is anticipated to be approximately $44 million for 2015.

Program production cost amortization increased, reflecting the higher revenues and associated amortization from the multi-year digital streaming deal for Hasbro Studios programming.

Our full-year expectation is this expense as a percentage of revenues remains in line with recent years.

SG&A increased 7% in the quarter to 29.3% of revenues.

Higher equity compensation and depreciation associated with systems contributed to the increase, as did continued investment in our Business, including Magic: The Gathering.

These increases were partially offset by favorable foreign exchange.

In total for the year, we believe these trends will continue, and that SG&A will be higher versus 2014's level of 20.8%.

Turning to results below operating profit, other income for the quarter was $4.7 million, compared to $5 million in 2014.

Profitability improvements in our 40% share of the operating income from the Discovery Family channel were partially offset by higher losses from foreign exchange.

The first quarter underlying tax rate was 27%, versus 26.1% in 2014.

We expect our full-year underlying tax rate to be in the range of 26.5% to 27.5%, reflecting continued higher anticipated earnings in the US.

Diluted earnings per share for the quarter were $0.21, versus the adjusted earnings per share of $0.14 in 2014.

We returned $78.7 million to shareholders in the quarter, $53.5 million in dividends, and $25.2 million in share repurchases.

Our next quarterly dividend is our first at the new rate of $0.46 per share, and is payable on May 15 to shareholders of record on May 1. Additionally, at quarter end, $539 million remained available on our current share repurchase authorizations.

Receivables at quarter end were up 2%, and DSOs were 71 days, down 2 days versus last year.

Absent the impact of foreign exchange, receivables increased approximately 18% versus the 14% growth in revenues.

Inventory declined $50.2 million compared to last year, and is of good quality.

Adjusting for a negative foreign exchange impact, inventory increased 1%.

Excluding FX, inventory increased in the international segment, which was mostly offset by lower inventory in the US and Canada segment.

In closing, the first quarter was a good start to 2015, and keeps us on track with our full-year expectations.

Foreign exchange will continue to be a challenge throughout the year, but we are taking steps to minimize some of this impact through pricing and product cost hedges.

Over the next several quarters, we are well positioned to capitalize on the positive momentum in our brands, the innovation we're delivering, and our robust entertainment slate.

Brian and I are now happy to take your questions.

(Operator Instructions)

Our first question comes from the line of Steph Wissink with Piper Jaffray.

Please proceed with your questions.

Congrats, you guys, on a great quarter.

Wanted to just ask one question with respect to your global positioning, as we head into the back part of this year.

Can you talk a little bit about your distribution in some of the emerging markets, and some of maybe the mature markets that have been a little bit more sluggish?

Is it your anticipation as some of the content-backed properties comes through, that you'll start to see those markets accelerate into the back part of the year?

We've seen year to date that our POS is quite strong in many of our markets around the world, including where we have our own data for emerging markets.

So, good performance thus far for our brands around the world in the first quarter -- double-digit POS growth for every market that we track, with only one exception, where France was up mid-single digits.

But across the world, we're seeing very strong double-digit growth in POS.

Similarly, in emerging markets, we continue to see good progress, obviously affected by ForEx in terms of absolute top-line revenue growth.

Absent ForEx, 25% revenue growth in emerging markets in the first quarter.

We've seen, both in our brands growth, as well as entertainment and licensing, that the storytelling within our brands, and television in particular, has helped to power brands like My Little Pony and Transformers.

Certainly, this is a very robust movie year for us -- entertainment-led year.

We see that entertainment slate coming throughout the year.

It's a little more spread out than in years prior, with Star Wars coming later in the year.

But clearly, over time, we are seeing the expansion of entertainment-led brands, particularly in our partnership with the Walt Disney Company, being more globally led, with greater strength in distribution, more screens available -- movie screens available for moviegoers to enjoy those films.

Certainly more global box office and, therefore, we would surmise, greater toy sales over time.

That's great.

Thank you.

And, Deb, just a clarification question on the digital distribution agreement, or the streaming distribution agreement that you signed: Can you just remind us how that's accounted for?

You have this upfront Q1 event.

Then, do you receive a series of payments over the course of the coming quarters based on the consumption patterns?

Just explain to us how that may work, so we can know how to model that out?

Sure.

Well, we had a similar arrangement, probably about three years ago that we talked about, and what happens is we recognize the revenue when we deliver the series.

So, as we had this payment come in, in the first quarter, and delivered most of the series that are under the agreement, we recognized most of the revenue in that period.

And you also see the amortization expense going along with that.

That's why we highlighted -- we have a few more higher line items in the quarter than we would expect for the full year.

Okay.

Thank you.

Great job, you guys.

Best of luck.

Our next question is from the line of Taposh Bari with Goldman Sachs.

Please proceed with your questions.

Deb, a question for you on cost of sales, and the outlook that you're providing: It seems like a repeat of what you said at Toy Fair, yet it looks like what's changed is your signing of this streaming deal.

I guess the question is: Was that already embedded in your commentary that you provided back in January?

Yes.

Okay.

Great.

And then, as we think about -- (multiple speakers)

I would just point out that we really did benefit from our product mix in the quarter.

So, it was -- a larger mix of our franchise brands helped us, including Magic: The Gathering, as well as the digital streaming deal that we signed.

And our entertainment and licensing segment overall is up, particularly the licensing part of the Business.

Taposh, our highest-margin business is entertainment and licensing.

Within that, obviously the licensing part of our Business is the strongest operating margin.

And it goes back to the idea that, in our strategy, there's tremendous power.

As we drive our brands with story, we're able to sign licensees who are benefiting from that storytelling globally.

And we certainly benefit from having their consumer products out in the market.

And we get paid for that, certainly for holiday sales in the first quarter, but throughout the year, as we have new episodes out, television episodes, and movies over time; that certainly benefits our margin.

That's what we've talked about -- over time, longer term, we would expect that to be a lever for growth in operating margin.

Great.

I know that within the entertainment and licensing segment, a lot of focus has been on Transformers and My Little Pony.

But a brand that seems to be on the rise within your portfolio is Play-Doh; there's some recent reports that have surfaced about a Play-Doh movie.

Was wondering if you can comment on that?

And as a follow-up, if you can help us better understand the size of that brand and its potential within your portfolio over time?

Play-Doh is up strong double digits this past quarter in revenues.

It was up double digits in POS.

We're seeing great strength.

That's true in the US, as well as around the world.

It's becoming increasingly one of our most powerful global brands.

A few years ago, we had anointed it as a franchise brand, and elevated it from a challenger brand status, and continue to put great innovation.

The team's done a very good job there.

We do have a movie deal that's being consummated, and some great creative stewards on that movie as an idea.

We think it's a very fun format for a movie and for storytelling.

We've seen some early indications of that through a television series we've been running in China.

And, again, the characters that we're developing around the Doh Dohs, as well as other characters that could appear in a Play-Doh movie, make it quite fun, and certainly something for the future years that we would take advantage of.

Great.

All the best.

Our next question is from the line of Mike Swartz with SunTrust Robinson.

Please proceed with your questions.

Just a point of clarification, Brian: I think you said that global -- was it global POS was up double digits, or in every market that you track it was up double digits?

We track it by market, so we have the syndicated data, NPD data, we have for a number of markets.

And the markets we have syndicated data for, US was up double digits, Canada double digits, Mexico, Australia, UK, Germany and Spain, all double-digit growth.

France was mid-single digits.

Our franchise brand POS in the first quarter were up -- was very strong growth and, again, indicative of the sales that we had.

But our POS is ahead of our sell-in, in franchise brands, as it is in sales, in many markets around the world.

That's where we have syndicated data.

We also have our own data in emerging markets.

Our teams track that pretty carefully, and we're seeing good growth there as well.

Would that have been up double digits, excluding, I guess, the Easter shift, on a normalized basis?

Yes, we believe it probably would, although we do think Easter had a very good impact.

Easter this year occurred in what we call week 14.

Last year it was week 16, which fell in to the second quarter.

Easter to Easter -- if you took the three weeks around Easter -- Easter to Easter was up a bit year on year.

But we've seen very strong POS growth throughout the quarter, and continuing into the second quarter.

So, we feel very good about the early initiatives we have for the year; again, these are early days.

Right.

Thanks.

And then, just thinking about the competitive environment, as we move you through the year, one of your big competitors was talking about putting more money into trade spending, as we get to the holidays.

I think they're really targeting some share losses in the dolls category.

How do you think about that playing out throughout the year?

We have very key levers in our Business that we've established around where our spending goes.

Increasingly, in our marketing, we're using digital marketing, and lots of very contemporary forms of marketing to our audience.

We work with our trade very effectively.

We've seen, obviously, growth in our Business at the trade.

We have plans in place as well.

It doesn't involve just increases, but certainly, where we are gaining share, which is in many different categories, and certainly around the world, we are getting gains in linear footage and, therefore, opportunities for both in-aisle as well as out-of-aisle placement.

And that just comes along with the growth in sales.

Great.

Thanks a lot for the color.

Our next question is from the line of Eric Handler with MKM.

Please proceed with your question.

Yes, thanks for taking my question.

A couple questions on the entertainment side: The upside that you saw in the quarter -- was that from the Netflix deal that was announced back in April?

And I'm just trying to true-up what -- that's eight months since that time, so is this the payment for that deal that was upcoming, or was there some other SVOD deal that got signed?

Secondly, are there future deliveries of product that is part of this deal, or was this purely a library type of contract?

And then last, when you look at the incremental margins on your entertainment business -- and understanding that this is a relatively small part of the Business -- but it looks like the incremental margin for the incremental revenue got to about 44%.

When you think about licensing, it's typically a 70%, 80% type of margin business, the SVOD deals are, again, very high, similar type margin because a lot of the costs have already been amortized.

What were some of the costs that went against that, that I may not be thinking about?

If you look at entertainment and licensing segment, there are several elements within our entertainment and licensing business.

Certainly, lifestyle licensing was up in the quarter, and that has to do with the fact that we get paid typically in arrears by a single quarter.

So, we account for the sales of our consumer products' licensees, and then we are able to take in those revenues as we get paid and recognize those revenues.

So, that was up in the quarter.

That obviously contributes to the mix, and contributes to the operating margin in that segment.

Certainly, we have a number of streaming deals that are happening.

We have our content on any number of platforms, SVOD platforms, including Netflix, but not exclusively to Netflix.

And, yes, there are payments that happen within the quarter.

What happens is, as we deliver the episodes, we get paid for the episodes that we're delivering, and we also have other deals in place.

So, some of this is library programming; and then, as we go on in time, we've talked about the development of, and launching of, new brands, and new brands would be launched both in linear television, and over time, on different SVOD platforms.

We also mentioned, Eric, that we had -- we referred back to our full-year estimates on amortization.

A lot of this revenue was included in our estimates when we set up our ultimates for amortizing the products.

What you'll continue to see is the amortization that had already been built into our revenue estimates for the full year.

Great, thank you very much.

Thank you.

Our next question is from the line of Gerrick Johnson with BMO Capital Markets.

Please proceed with your question.

I was hoping you could discuss the net EPS impact on results from foreign exchange?

And also, if you could quantify the impact in basis points on gross margin from FX?

And, finally, the absolute dollar amount that you benefited from hedging on FX.

Thank you.

So, the answer to the first question is: The FX impact on EPS in the quarter was $0.10.

So, otherwise, we would have been at $0.31 in the quarter.

Deb, you want to talk about the --

Sure.

We continue to have -- we had a slightly larger impact from foreign exchange, obviously because of the magnitude in the quarter.

You've got a fairly small revenue quarter compared to the rest of the year, so a bit higher foreign exchange impact than we would normally expect to see.

And as we said, we've hedged a fair amount of our product purchases; probably about the same level as we had hedged last year, obviously at declining rates through this year.

So, what you're seeing is a benefit of favorable foreign-exchange product-cost hedges in the first quarter, and a larger-than-average impact.

As a matter of fact, the impact on our revenue from foreign exchange was about 9% of our total reported revenues.

And if you recall, we said at Toy Fair that, at rates existing at that point in time, had those rates continued through the year, our 2014 full-year revenue would have been about $250 million less.

Well, in fact, the dollar has continued to strengthen.

So, if you looked at that impact at current rates, our revenues would have been about $310 million less.

And as the euro continues to move toward parity, if the euro actually hits parity, that would probably put another $60 million to $65 million negative impact on those revenues.

So, for the full year, we continue to see the impact of foreign exchange will be a headwind.

Because of the size of the quarter, it was slightly larger than it would typically be, but we do continue to think it would still be around that 10% to 15% impact to revenue will impact earnings per share.

Gerrick, we're obviously taking a number of steps to mitigate that impact.

We've taken mid-single-digit price increases, both in the US and around the world.

And in markets where we've seen particularly high ForEx impact, we've gone back to take additional price increases, where necessary, to try to, again, mitigate in the short term those FX impacts.

Okay.

Thank you.

And shifting gears a little bit -- not much mention of Little Pony in the quarter.

I guess it was up because it's a franchise brand, but can you discuss how it performed geographically between North America and international?

My Little Pony continues to perform quite well for us globally.

It certainly benefits from revenues in several different categories; goes back to the idea of being a franchise brand, and having licensed product, as well as our own toy and game product.

We are gearing up for -- the fifth season of My Little Pony is just breaking now, and will break throughout the year.

So, brand-new product lineup around the fifth season that comes in second, third and fourth quarters.

But My Little Pony performed well.

Its POS was in -- the Pony business -- the core Pony business was quite good for the quarter -- double-digit POS increase there.

And, again, it's a small first quarter, and we're gearing up for the rest of the year, but My Little Pony continued to grow in the quarter.

Okay.

Great.

Thank you very much, Brian.

Thank you.

Our next question comes from the line of Jaime Katz with Morningstar.

Please proceed with your question.

I guess my question's about preschool.

It seems like both you and your closest peer have turned the segment around in the last quarter, or there's been something else that has been driving demand there.

Can you talk a little bit about where you guys have seen strength, and maybe how you think about continuing to connect with consumers in this segment for the rest of the year?

Sure.

In our preschool segment, one of our biggest brands there is Play-Doh.

It continues to perform incredibly well.

It's one of our most global brands, and a number-one brand in a couple countries around the world for us.

The brand was up double digits in the quarter.

The POS was up double digits throughout the world.

We continue to have all new innovations; and again, that team has done a great job of continuing to innovate that brand.

This is absent even DohVinci; we're just talking about the core Play-Doh business.

The other part of the Business that's performing quite well is the character-based business; that storytelling-led business is very strong.

We saw good strength in Transformers Rescue Bots.

We got -- in both placement of the TV show, as well as the toy sales in the quarter, were quite good.

We add to that initiatives around Jurassic World, which just begin to take hold now.

So, again, character-led business has been particularly strong, and we've seen that for our Business.

We have a number of new initiatives in our core Playskool business.

You saw at Toy Fair -- play, stow & go.

Early indications there, good POS, albeit early days.

But POS growth there for some of the new initiatives in core Playskool.

So, I think it's about creating those innovations, based on great consumer insights about character-led business, and great creativity, and enabling kids and moms to agree on developmental milestones, and all the fun of our Play-Doh business -- that great creativity that parents really love, and kids enjoy as well.

Okay.

And then, your advertising ratio for the year appears that it's going to be down.

Are you guys finding more efficient channels to advertise in, or is it just that the tilt to more digital is less expensive?

Advertising, we've said, ratably should be right around 10%; so, very consistent with the year-ago numbers.

But over a trend line -- longer-term trend line -- it's down a bit, but it's not -- it won't be the same number as it was in the first quarter.

It was down more than that in the first quarter, and that just has to do with the size of the quarter and revenues.

But if you look at our strategies, clearly we are employing every one of the digital strategies that are available to us.

That does add a level of efficiency and effectiveness to our messaging.

Engaging consumers, enthusiasts and fans, and enabling them to curate our brands and get involved in their own content creation, and involvement in our polling, whether it's in our games business or in our preschool business, is quite an enabling technology that does enable us to -- allow us to more effectively advertise over time.

Thank you.

Thank you.

Our next question comes from the line of Tim Conder with Wells Fargo.

Please proceed with your question.

Congratulations, Brian, again.

I know it's a small quarter, but a little additional color, just to clarify.

The streaming -- this is more of a one-time payment, or will there be, going forward, a little bit starting to come in each quarter, from that perspective?

And I guess in relation to that, obviously we've got FX everybody's dealing with.

But you talked about the comparables going across the year -- the timing of the entertainment releases.

Can you just talk through the quarter, given FX and the timing of releases, where you'll have more difficult versus easy comparisons in the latter three quarters here?

I think that, as we look at the entertainment initiatives, what we were trying to point out is just simply that we have a very robust slate.

We've said we've entered this unprecedented era of new entertainment.

The Company's certainly benefiting from our own entertainment, as much as our partners' entertainment.

In the first quarter, in percentage terms, the fastest growing -- the percentage growth was fastest for Transformers.

We have a new show that's on Cartoon Network.

This just broke in -- the carry-over sales of our movie-related products from 2014 are quite strong in the quarter.

So, the combination of storytelling and movies and television have benefited our own brands.

As we go out through the second, third and fourth quarter, what we were trying to point out is that all of the big movie titles don't come just in the second quarter, as they did a year ago; that they're more spread out throughout the year.

And I think that's something to think about, as you map out the remainder of the year.

We're really not giving you, if you will, overall annual guidance, but trying to say where those revenues may fall, just to help be thoughtful around where the entertainment really will continue to drive our Business.

And, Tim, remind me the first part of your question?

Yes, on the expense side of the comparables, given the timing and where you have hedges, and your revenue, and where that revenue comes from -- just the comparability -- how we should think about the FX?

We can see where the different currencies are, but there are other components we can't, of FX, so that comparability.

And then, the first part was the digital streaming.

Should we think of these more of just one-time payments, or is there going to start to be a component of where that's going to start to flow each quarter, Brian?

Digital streaming -- we mentioned that in 2012 we had done a similar digital streaming deal -- that was a few years ago -- and we mentioned how that revenue comes in.

Obviously, in entertainment licensing, we also took in significantly more licensing royalty income.

So, it's not just digital streaming in that category.

Deb, do you want to --?

Digital streaming revenue does primarily come in one big chunk.

So, that's why, if you recall, Tim, I said it made things a little bit lumpy, at the time.

We'd say it's just a bit lumpy.

But, again, it's been built in to our models, and that's why we've continued to say that our amortization for the full year will be consistent with last year, because obviously that number is impacted significantly.

As far as foreign exchange, you're right, I mean, the way numbers have moved, and rates have moved, and the dollar has strengthened, even from Toy Fair, has had an additional impact to us.

If we looked at last year's revenue, it would be about a $60-million additional negative impact to the year, and you can add another $60 million on that if the euro goes to parity.

So, as we watch how rates go throughout the year, it will have an impact on revenue.

But no color -- I remember you had mentioned that earlier in the call -- but no color, again, where your hedges are, and the mix of your revenues throughout the year?

Would there be any quarters that were more challenging than the others, other than just looking at where the FX is year over year?

We've hedged about the same level as we did a year ago, and each month is a little bit different.

Kind of think about -- we have this rolling hedging program.

As a matter of fact, after year end we had even put in more hedges to go out through 2019.

So, you think about, as you layer those hedges on at different times, they're at different rates, and you get different flow-through of positive impact to the gross margin.

For us, we've always said -- we don't speculate.

We do it really to protect our product pricing.

So, we know what we have to price our products at, in the various markets, over time.

Tim, as we go out beyond 2015 into 2016 and beyond, you know we go out and price product based on the prevailing elements of the marketplace.

And given so much of our line is new every year, it gives us a chance to look at what the cost inputs can and should be, what the pricing should look like, and, therefore, this year it's about the fact that FX changes were so significant across countries, and so fast in terms of the change back in the fourth quarter of last year.

So, this year, we have to mitigate those changes, taking steps wherever we can on pricing, and looking at our costs.

But as we go out in the future years, we've taken that into account, and begun to address that, so that we can look at that in our cost of goods and into our product development, as well as product pricing.

And final question: You've done a great job, starting several years ago, of seeding your content and brands into many international markets, and now with the expanded Disney relationship, and going direct also from a distribution standpoint.

Where do you see other markets where you need to go direct, and the plans to do that here -- any additional opportunities over the next -- through this year or into next year?

We're continuing to develop our product along a number of different lines.

We've said our first objective was to create the right balance of our franchise brands, franchise brand effort, and franchise brand growth.

We've then developed adjacencies that you've seen enter the market quite successfully around those franchise brands.

The next phase of our development, you will see over the next number of years, some new brands -- that we will now take this blueprint and model we have created, and begin to introduce some of the new brands.

Some of those are from our vault, like Jem and the Holograms.

Some will be absolutely new to us.

A few are based on some historical acquisitions we made like Micronauts, but that becomes part of the mix as we go out over the next several years.

Then, in addition to that, we've talked about how, in partnering with the Walt Disney Company, we have the opportunity to take advantage of their amazing slate of entertainment that's upcoming, as well as, in future years, the Princess business that we're very excited about.

And it continues to allow us to balance our revenues where our partner brands' revenues should be, plus or minus 20% of our revenues -- a couple points higher or lower in some individual years.

But that balance enables us to continue to generate the kind of operating returns we're looking for, as a Company.

And we still see opportunity, in the various emerging markets that we're in now, to continue to expand our market share, and for growth as those markets grow as well.

And outside of that, we talked about some other markets; Wiebe specifically spoke at Toy Fair about some growth in Indonesia and some Asia markets as we go forward.

But nothing certainly of the size and investment that we've had in places like Russia or Brazil, where they're just very large countries.

Great.

Thank you both.

Our next question comes from the line of Drew Crum with Stifel.

Please proceed with your questions.

So, on the girls business, Brian, you mentioned Furby as being a headwind.

When does that stop becoming a headwind, and does that prohibit you guys from growing the girls business in 2015?

For the full year, we have some amazing initiatives and new innovations across our girls business.

And if you look at My Little Pony, there's brand-new product lineup, as well as a whole new TV series we're hitting.

This is season number five, and a brand new series that we've developed for My Little Pony.

Littlest Pet Shop has seen great growth in the quarter, and really just beginning to build on the momentum that we said we would create, based on all new TV series, and getting that entertainment out around the world.

For the second half of the year, of course, we add Disney Descendants.

I'm very excited about the new entertainment initiative from Disney, and our line-up there.

So, I'm not going to really guide you on overall girls growth.

The last two years, we've grown the girls business; and both years have been north of $1 billion.

Furby was a big brand for us.

And last year, it continued to be a big brand as it moved through non-English-speaking markets, and it will continue to be a headwind throughout the year.

But having said that, the teams are lining up some great product and storytelling initiatives for our own franchise brands, and lots of new news within our challenger brands for the third and fourth quarter.

Got it, okay.

And I apologize if I missed this: Did you quantify growth for Magic in the quarter?

And could you also comment on what you've seen in the channel, in terms of receptivity to the new format or cadence of cards that you're doing for that franchise?

We saw great growth for Magic.

We didn't put percentage terms on that, but Magic in the quarter was very strong -- was double-digit growth.

We talked about the fact that, that had something to do with -- we've talked about the timing of new initiatives -- the major release came in the first quarter this year, whereas it was in the second quarter a year ago.

So, you do have some points of comparison year on year that have to do with this new timing schedule.

But we're very happy to see both the sales, as well as the sell-through, of Magic continue to grow.

And we'll see, as we go through the year, just the overall receptivity to the new cadence.

But what I will tell you is, thus far in the year, the engagement with fans and enthusiasts, the tournament play, and our effort and commitment to continue to improve the online experience with Magic: The Gathering is front and center at the Company.

It's something that we're investing in.

We think Magic, long term, has incredible growth potential, and we're just scratching the surface of the opportunity with that brand.

Great.

Brian, just one more from me: Any update on a Transformers sequel film?

Sure.

Our plan right now with the studio and filmmakers -- you may have read something about some writers being hired.

We have, in fact, brought in Akiva Goldsman to lead a group of writers to really create a strategic plan around Transformers.

We think there's any number of stories to be told.

It's a brand that's been around for 30 years, with amazing canon and mythology.

We would expect the sequel to Transformer movie to happen in 2017.

Got it.

Great, okay.

Thanks, guys.

Our next question is from the line of Sean McGowan with Needham & Company.

Please proceed with your questions.

Also have a couple, if I can?

When you look at the royalties and entertainment revenue that comes in, and then you allocate them around the brands, can you talk a little bit about what that says about the growth of trends?

Like, would Transformers have been up without such payments?

I'm not trying to say that that's not legitimate revenue; it is.

I'm just trying to get a sense of whether it's the payments that are driving that growth, or is it actual sales of toys?

Similarly, what does it say for girls if you had a lot of things going right on the entertainment licensing in the quarter for girls, but it's still down?

I think we noted why girls was down.

We're up against a very big Furby comp.

Of course, in the first quarter, Easy Bake was down because, again, it's very holiday sales-oriented, and there's a bit of impact with some inventories based on the West Coast port strike, and some delays around a little bit of product.

Transformers would have been up without the entertainment payment.

So, I think that I would turn it around a little bit.

I would say that our objective is to continue to grow our franchise brands across a number of dimensions.

We're going to continue to be the preeminent creator of toys and games, through great innovations and consumer insights.

But through storytelling, we are going to bring the power of our brands to other consumer product categories.

That is the nature of the way fans and enthusiasts want to enjoy brands today.

We are following the consumer, and they're telling us that that, in fact, is the most contemporary way to proceed, and that is modern day brand building.

And so, we think that we're offering both a differentiated approach to the market, as well as something that's incredibly compelling to our fans, enthusiasts, kids, and other audiences around the world.

And that's what's being borne out.

The blueprint is the strategy that we're employing, and we see those revenues from our consumer products business as important as, and an opportunity to expand our operating profit beyond just what our toys and games business can provide.

But recognize that our franchise brands inherently, even within our toy business, enjoy higher operating margin than our partner brands, because, of course, they have lower royalties to be paid out.

Thanks for clarifying that.

Similarly is with the increase in -- was games up ex-Magic?

Games was flattish.

It was up in the US, down a little bit internationally, but we have a number of games that grew within the quarter.

In fact, a raft of games, including Dungeons & Dragons, which is really on a tear.

Risk, Scrabble, Trouble, Life, Candy Land, Clue and Ouija were all up in the quarter.

And we're seeing great sell-through of our games.

Our games POS was up in the first quarter in the US, and up in many markets around the world.

And so, down a little bit internationally, but we view a lot of that as just timing on some of our new games initiatives.

Was that down internationally -- was that just currency or was that in local currencies?

No, that was inclusive of currency, because we didn't retranslate that number.

So, that includes the declines relative to FX.

It's probably up then, if it's just down a little?

I don't have that calculation in front of me, so I'm doing it as reported.

Okay.

Then the last question: Can you help us, at least order of magnitude, quantify what impact there might have been from the Easter shift?

And, again, order of magnitude, the digital streaming deal that hit the quarter?

Look, I think that the Easter shift was a couple of weeks.

It was our week 14 this year versus week 16 a year ago.

But we've seen strong POS since the very beginning of the year, and that strong POS has continued post-Easter.

I said, Easter on Easter, this year we were up a bit, so it was a bit stronger than Easter a year ago.

Overall, what we're really seeing is great strength in our franchise brands, as well as some great partner brand initiatives -- the Marvel business is performing incredibly well in the first quarter.

Star Wars POS is up significantly in the first quarter, behind both action figures and role play.

We're very excited about the Star Wars entertainment, even in this quarter of the year.

So, we're seeing -- from strength to strength -- in terms of what's selling in the first quarter.

We point out the impact of Easter, only in as much as some shipments certainly have to happen before Easter in order to get on shelves, and we just think it's fair to be transparent about where Easter falls.

In terms of the entertainment and licensing business, the payment for streaming rights, digital rights, is only part of our entertainment licensing business.

We also saw considerable increases in the entertainment royalties, the licensing royalties around our brands, and we talked about the fact that we had very good holiday sales around Hasbro franchise brands, and in several categories we are up around the consumer product sales related to our brands, that we get paid in terms of royalties, and hit the entertainment and licensing category of our P&L.

That's the plan.

It seems to be working.

Would you say that the Easter shift helped, or was it offset by the port delays -- like, are they comparable?

That would have been a negative, right?

The port delays are certainly -- it's funny.

They're certainly a negative in a few brands, where some of the new spring initiatives have not gotten out as fully as they will in April and May.

And so, a lot of the teams -- the marketing teams have noted that.

Conversely, the fact that we had very strong carry-over sales of brands like Nerf actually benefited us, because we had such good sales of Nerf around the holiday period.

We didn't have the spring initiatives, but our carry-over items have sold incredibly well.

And Nerf's POS is up significant double digits in the first quarter, and grew considerably in the first quarter.

So, I do think that there's some puts and takes.

Overall, the port strike has been a negative.

I certainly wouldn't characterize it as a positive, but we are working through that, and we've said for the full year we didn't expect that to impact revenues.

Okay.

Thank you.

Thank you.

At this time, I'll turn the floor back to Ms. Debbie Hancock for closing remarks.

Thank you, Rob.

And thank you, 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.

In addition, our second-quarter earnings call is tentatively scheduled for Monday, July 20.

Thank you.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.