孩之寶 (HAS) 2016 Q4 法說會逐字稿

Good morning welcome to the Hasbro fourth-quarter and full-year 2016 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 Chairman, 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 fourth-quarter and full-year 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.

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.

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.

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.

2016 was a very good year for Hasbro with tremendous performance from the Hasbro team globally.

Our excellent results reflect nearly nine years of investing in and executing our brand blueprint.

Over this period, the blueprint has remained a constant, guiding our strategic decisions and investments, while we build an organization with differentiated brands, capabilities and approaches to the consumer.

The investments we are making and the cultural mindset we are instilling are not only delivering improving results, but also creating long-term strategic differentiators for Hasbro.

Through our consumer insight and story-led brand focus, we are creating innovative play and compelling entertainment to successfully build Hasbro into a global play and entertainment company.

Revenues for the year increased 13%, topping $5 billion for the first time in our history.

This included a strong finish to a strong year with 11% revenue growth in the fourth quarter.

All regions contributed.

The US and Canada segment increased 15% for the year.

The international segment gained 11% and the entertainment and licensing segment was up 8%.

We grew in major developed economies, including the US, UK, France, Germany and Canada.

Revenue also grew in emerging markets, increasing 12% in constant dollars, with growth in Brazil, Russia and China, among other countries.

Operating profit grew 14% or 19% on an adjusted basis outpacing revenue growth.

Operating profit margin increased for the third consecutive year.

We returned $400 million to shareholders through our dividend and share repurchase program and ended the year with $1.3 billion in cash.

Given our recent success and favorable outlook, the Board has declared a 12% dividend increase to $0.57 per share.

For 2016, Hasbro's growth outpaced the overall market and per industry data, we gained share in almost every country we track.

This includes share gains in the US, UK, Brazil and Russia.

We finished the year strong.

Hasbro was ranked number one in the industry for the month of December among the top nine markets tracked by NPD.

We also grew to become the number one company in the Brazilian market for the year and after taking over the number two position last year in Europe, we gained share across the region and were the top company in Spain.

Global point of sale increased 12% for the year, including an 11% increase in the fourth quarter.

The US, Europe and Asia-Pacific regions delivered double-digit full-year POS growth and Latin America was up in the mid-single digits.

Online US point-of-sale grew more than 3 times faster than total POS.

Strong December consumer takeaway, combined with continued momentum this year, positions us well for 2017.

Overall, we feel good about the level and quality of our inventories at retail across the globe, as well as at Hasbro where inventory finished essentially flat with last year.

There has been a great deal of focus on the performance of the toy industry and the readthrough for Hasbro's performance.

Importantly, the industry is growing and continued to grow throughout 2016.

Despite some shifts to later consumer purchases, we do not view and did not experience this season as different from other years.

As many of you know when we speak about our business, we focus on full-year performance.

This is due to our long-term perspective toward developing our brands, the seasonal nature of the industry and the impact of many factors on weekly, monthly and even quarterly sales trends.

These factors include the timing of launches, holidays, the number of days or weeks in a period, promotional activity, retail inventory and changes in share.

It is equally important to recognize that while publicly available data is directionally valuable, it does not represent the majority of Hasbro's global business.

First, this data is highly aligned to our more traditional US retail toy and game business, but less so in many growing channels, including club stores, grocery, drug and value channels.

Second, it does not capture hobby stores where we execute more than 80% of our Wizards of the Coast business, including Magic: The Gathering.

Third, it misses the approximately 5% of our business in the entertainment and licensing segment, including consumer products, digital and entertainment revenues.

We are a global business with approximately 50% of revenues outside the US.

Current industry data is concentrated in the US.

While data is available for approximately 10 global markets, it covers less than in the US.

Importantly, if you are an investor reading publicly available data on the US market, please be aware that this correlates to at most 35% to 40% of our total global revenues.

Finally, innovative story-led brands appeal to global consumers and audiences.

Not all brands will grow every quarter or even every year, but brands built on proprietary insights with real innovation, strong storytelling and offered to consumers and audiences in the way they want anytime and anywhere are the brands that will also deliver results and shareholder value.

For 2016, Hasbro brands and our partner brands delivered broad-based growth across demographics and play patterns.

We delivered innovative new offerings for the number one global toy property, Star Wars and Nerf grew to become the number two global toy property.

Nerf revenue increased in the mid-teens year-over-year and it remained the largest brand in our Company.

Play-Doh posted its fifth straight year of growth and Baby Alive grew significantly.

The games category was up 9% led by Pie Face and the eighth straight year of growth in Magic: The Gathering.

There were several growing brands in our gaming portfolio which drove face-to-face gaming, off the board gaming and digital gaming.

Our $1.4 billion gaming portfolio is unparalleled and addresses broader demographics and play experiences than any other company.

In digital gaming, Hasbro brands continued to perform extremely well.

Mobile is the biggest and fastest growing piece of the gaming market.

Hasbro's brands and gaming experiences coupled with our internal expertise and industry partnerships uniquely positions us to capitalize on this trend.

New launches from Backflip Studios, including Transformers Earth Wars and DragonVale World are performing well.

To drive expansion in this market, we are now operating Backflip as a wholly-owned subsidiary.

The mobile gaming market is dynamic and much has changed since 2013 when we first invested.

During the fourth quarter, we recorded a non-cash goodwill impairment charge related to that investment.

We remain committed to the team and investing to grow in Hasbro's brands in digital gaming.

Going forward, Backflip will be focused on fewer bigger initiatives, including new Hasbro-branded games and we will continue to build our expertise in this important and strategic gaming market.

During 2016, we activated very successful launches of Hasbro's line of Disney Princess and Disney Frozen dolls, as well as our DreamWorks Trolls line.

Both new initiatives exceeded our initial expectations and were extremely well-received by retailers and consumers.

2016 was also a good year for Star Wars.

It remained the number one global toy property according to NPD and Hasbro gained share within the property.

While Hasbro's global Star Wars revenues declined slightly, we capitalized on the growing franchise driven by both Star Wars, The Force Awakens and the December release of Rogue One: A Star Wars Story.

Innovation in action figures, role-play vehicles and face-to-face games excited both fans and younger audiences globally.

With a late December 2016 movie release, we have a good quality inventory at retail.

We are confident that we will work through this inventory, ship new innovative product and new assortments in the first half of 2017 and prepare for the release of Star Wars: The Last Jedi later this year.

Our trade partners are excited about the movie, our innovation across segments and the promotional plans we are working on with them.

2017 has several additional theatrical releases across demographics and genres, which retailers and consumers are getting behind.

In March, Disney's Beauty and the Beast hits theaters.

In May, we will see Marvel's Guardians of the Galaxy Volume 2. Spiderman Homecoming opens in July and November we will see Thor: Ragnarok.

Significantly, Hasbro has two major films featuring our brands -- Transformers: The Last Knight opening in June and My Little Pony, The Movie, comes to theaters in October.

Powered by our all-screen year-round storytelling, Transformers had a strong finish to 2016, posting double-digit growth in the second half of the year and is well-positioned for the next chapter of the Transformers franchise.

My Little Pony revenues declined last year, but grew in the international segment.

Brand engagement continues to build through multi-screen storytelling and we have an innovative and robust line with new characters and worlds.

Retailers and consumer products licensees are significantly supporting both Hasbro films.

2016 showcased the extensive innovation and progress Hasbro is making every day.

Our brand blueprint is delivering bigger opportunities and new thinking from our teams.

Beginning with the first quarter, we will no longer report revenue along the boys, games, girls and preschool categories.

Instead, we will provide a revenue breakdown of franchise brands, partner brands, Hasbro gaming and emerging brands.

We believe this is a more relevant and appropriate view of our business.

We hope to see many of you next week in New York for Toy Fair.

We have amazing new initiatives to share, far too many to review today.

As we begin 2017, we have already introduced an all new segment for Nerf, Nerf Nitro, which combines Nerf blasting and innovative foam vehicles.

We've also introduced an all-new story-driven lifestyle brand, Hanazuki.

We launched this brand on YouTube with animated streamed content produced by Hasbro Studios.

In the first three weeks alone, it has over 49 million views.

We look forward to telling you more about these initiatives and many others at Toy Fair.

I will now turn the call over to Deb.

Deb.

Thank you, Brian and good morning, everyone.

The global Hasbro team delivered a well-executed year with robust and profitable growth across geographies and segments.

The team managed difficult comparisons and economic conditions to grow revenues, operating profit, EPS and generate strong cash flow for the year.

We continue to make strategic investments in our brands and our Company to better position us for the future.

Our strong cash position enabled us to return $400 million to shareholders through dividends and share repurchase and the Board's 12% quarterly dividend increase announced today is further indication of our positive outlook and confidence in the performance of Hasbro.

We exited 2016 with good momentum exceeding even our own expectations and we are well-positioned to execute against a strong 2017 plan.

For 2016, games revenues grew 9%, franchise brands grew 2% and partner brands were up 28%.

Revenue also grew in each major operating segment.

In the US and Canada segment, revenues increased 15%.

Revenue growth in the girls games and boys categories more than offset declines in the preschool category.

Hasbro franchise brand revenues grew 3% driven by growth in Nerf and Play-Doh.

Games grew 11%, including growth in Pie Face, Duel Masters and the Speak Out game.

Baby Alive revenue increased significantly, plus partner brand revenues increased 25% behind contributions from Hasbro's line of Disney Princess and Disney Frozen, DreamWorks Trolls and to a lesser extent Yo-Kai Watch.

US and Canada point-of-sale increased 11% in the year, including a 10% increase in Q4.

Retail inventory is of good quality.

Operating profit in the US and Canada segment increased 21% to $522.3 million or 20.4% of net revenues.

The team profitably grew Hasbro with higher revenues delivering improved expense leverage even with increased expenses and investments to support a growing business.

International segment revenues grew 11%, including a negative $58.4 million impact from foreign exchange.

Within the international segment, all product categories grew.

Franchise brand revenues increased 3% with growth in Nerf, Play-Doh, Magic: The Gathering and My Little Pony.

Hasbro brand's Baby Alive and Pie Face also contributed to the segment's strong performance and games grew 4%.

Partner brand revenues increased 31% behind Hasbro shipments of Disney Princess and Disney Frozen, Yo-Kai Watch and DreamWorks Trolls.

Point of sale grew across all three regions -- Europe, Latin America and Asia-Pacific -- for both the year and the fourth quarter.

Operating profit in the segment increased 15% to $294.5 million or 13.4% of net revenues.

Like the US and Canada segment, the international segment continued to generate greater expense leverage while at the same time investing back into the business.

Growth in higher profit brands such as franchise brands, strong results from our hedging program and effective cost controls mitigated the negative impact of currency exchange.

Entertainment and licensing segment revenues increased 8% with growth in consumer products, digital gaming and the addition of Boulder Media.

Segment operating profit as reported decreased to $49.9 million and includes a non-cash goodwill impairment charge of $32.9 million.

Excluding this charge, operating profit increased in line with revenues or 8% to $82.7 million or 31.2% of revenues.

Higher revenues and lower program production amortization were partially offset by investments in building our consumer products team globally and higher expenses at Backflip Studios in support of new gaming launches.

Boulder Media revenue and expenses are being recorded in this segment and were slightly accretive to the year.

Overall, Hasbro operating profit increased 14% and profit margin expanded 10 basis points versus last year.

Adjusted for the non-cash goodwill impairment charge, operating profit grew 19% and operating profit margin increased 90 basis points to 16.4%.

The strength of our revenue growth and our continued focus on profitably growing Hasbro more than offset investments in our business, as well as higher expenses.

With strong consumer takeaway in the fourth quarter and all of our segments performing at a high level, we achieved better-than-expected leverage on our operating expenses.

Cost of sales for the full year increased 14%.

We forecast cost of sales to be essentially in line with last year and ended the year up 30 basis points.

Our discounts and allowances were not different than prior years and the increase was primarily driven by product mix, including a mix shift within our partner brands.

As we have stated previously, different lines carry different costs, but also impact other line items such as royalties and advertising expense often in inverse ways.

This product mix shift drove an equal 30 basis point decline in royalties as a percentage of sales.

We continue investing in innovation and brand engagement to build differentiated brand experiences.

For the year, while reflecting this investment through an increase in dollars, product development declined 20 basis points as a percentage of sales and advertising increased 10 basis points.

Intangible amortization was lower as forecast, reflecting the full-year impact of certain digital gaming assets being fully amortized.

Program production amortization declined slightly based on the timing of program deliveries.

In 2016, we spent approximately $49 million in cash on television and film content development.

We continue investing in differentiated storytelling and entertainment, including the 2017 My Little Pony animated feature and the launch of Hanazuki.

SG&A increased as a percentage of sales, including the $32.9 million non-cash goodwill impairment charge.

Excluding the charge, SG&A declined 20 basis points year-over-year.

During 2016, we had higher expenses associated with investments to profitably grow Hasbro for the long term.

These include investments in Magic: The Gathering and our consumer product teams, higher depreciation for our investment in IT systems and higher compensation expense associated with our stronger performance.

Turning to our results below operating profit, other income was $1.8 million versus $9.1 million last year.

Improved earnings from our share of the Discovery Family Channel, along with higher interest income and investment gains, were more than offset by higher expense related to foreign currency translation.

Most of this impact arose in the fourth quarter driven primarily by a steep decline in the British pound and the steady strengthening of the US dollar against the euro.

On a reported basis, 2015 included a $6.6 million gain from the sale of manufacturing operations.

Excluding the gains, 2015 other income was $2.5 million.

The underlying 2016 tax rate was 24.5%, down from 26.4% for the full-year 2015.

The decline in the tax rate reflected higher US-based expenses and a higher mix of international sales.

For 2017, our tax rate will be favorably impacted by the new accounting standard governing stock-based compensation.

We will outline the impact of this standard on our quarterly tax rates in more detail at Toy Fair next week.

Our diluted earnings per share for 2016 were $4.34.

On a non-GAAP basis, excluding the $0.12 per share goodwill impairment charge, adjusted 2016 EPS was $4.46 per share.

We finished 2016 in a very good financial position, including a strong balance sheet with robust cash generation.

The $775 million in operating cash flow we generated during 2016 allowed us to continue executing against our capital priorities of investing in Hasbro and returning cash to shareholders.

In addition to the 12% quarterly dividend increase, we are currently targeting 2017 share repurchases in line with 2016 levels.

These repurchases are subject to market conditions and availability of US cash.

Receivables at year-end increased 8% and days sales outstanding decreased two days to 73 days.

Our accounts receivable are in good condition and collections continue to be strong.

Inventories at year-end were essentially flat with last year, increasing $3.2 million.

As we communicated, we built inventory during the year to meet our anticipated demand and strong revenue growth outlook throughout 2016.

To begin 2017, we have good quality inventory in the right brands and geographies.

Running a global business, you will always find some challenges with certain brands, retailers or regions, but, overall, we feel good about the level and quality of our retail inventories and the strong December consumer takeaway has us well-positioned to begin 2017.

In closing, 2016's strong performance was driven by a focus on our strategy and tremendous execution across the Hasbro team in building great brands, telling amazing stories, listening to our consumers and executing with excellence while always investing to position us for future successful years.

Brian and I are now happy to take your questions.

Thank you.

(Operator Instructions).

Drew Crum, Stifel.

Deb, I wonder if you could talk about expectations for the EBIT margin in 2017.

I think 2016 was originally discussed as a year that would limit -- the investment spending would limit the margin expansion, but you were able to pick up 90 bps of EBIT margin in 2016.

So where are you in terms of cycling through some of those investments on Magic, on the Disney Princess license, on the IT system and what does that allow for margin expansion for 2017?

And then for Brian, could you talk about some of the tailwinds and headwinds as we think about brands for top-line growth in 2017?

Thanks.

Yes, as we said, we just had an exceptional year here at Hasbro and our results exceeded even our own expectations and we said earlier in the year, we believed that our margins would be flat to slightly up and they were better than that.

They were slightly up, including the impact of our non-cash goodwill impairment.

Again, that was an accounting charge that we had indicated we needed to look at potential impairment in the fourth quarter and just due to some timing, we did have one, but it was a non-cash charge.

So absent that, just based on our good performance and solid performance around the world, we were able to increase our operating profit margins faster and more than even our own expectations a bit earlier in the year.

As far as 2017 goes, we think as we looked at and continue to make those investments because again what we always stress is it's really for the long term, sustainable, profitable growth of Hasbro that we will still have some investments, particularly in 2017 on Magic: The Gathering, to get Magic digital next up and running and some other investments that we'll continue to make in the business and some of those other non-cash type charges that we've expended like depreciation on our IT systems.

We will put a chart up at Toy Fair again on that, but we had showed that they do peak up to 2018 and then start to come down after that.

So we will provide quite a bit more color at Toy Fair as well.

Yes, so, Drew, I think important to note that I would encourage you to model off of our GAAP operating profit margin and remember that we've improved operating profit margin over the last three years consecutively.

So I think the higher operating margin certainly portends good things as we continue to look at ways to expand operating profit faster than revenues growth.

And it's a shape of things to come in the future and then model off of the GAAP operating margin.

As you look at brands, I think that our new designations and categories are a great way to now look at our business.

It's much more indicative of the way we look at our business.

So you see great growth for the year in gaming was up 23%.

The games category overall, which is that $1.4 billion business for us, was up 9%.

Our emerging brands were up 17%.

Our franchise brands were up a couple percent, 2% and then, of course, our partner brands were up 28%.

So the Company had great strength and if you took out partner brand growth, the Company still grew in a very strong way.

So I think going into 2017, what you see is good retail inventory on several brands that really performed throughout the year and we are setting up for early year initiatives, including Princess, Nerf, Star Wars, Frozen, Trolls.

We also saw great growth of these brands online and as we go into the initiatives for the year, you see quarter-by-quarter great initiatives coming from us for our brands and also our partners' brands.

I think one of the first initiatives out of the gate is the new live action Beauty and the Beast movie coming from Princess in March and then we go into three Marvel properties for the year, including something I'm very excited about, the new Spiderman movie, which is incredibly toyatic and then a Guardians film and Avengers.

But brand to brand, strength to strength for 2017.

I think the other fun part of the Star Wars lineup for 2017 is its 40th anniversary.

So in addition to focusing on the two movies coming out of last year and then into the new movie, The Last Jedi for December, obviously, it's a wonderful year to celebrate the 40th anniversary of the New Hope.

So again, whether it's Nerf or Play-Doh or some of our partner brands, what we are going to do for Transformers and My Little Pony around our two feature films, you will see a real strong lineup as you come into Toy Fair next week.

Thanks, guys.

Felicia Hendrix, Barclays.

So Brian, heading into this call, I think expectations were different -- were for you to have a different tone in general, maybe not specific to the Company, but regarding the industry as a whole.

So clearly, you benefited from strong performance in the quarter, but can you just give us some color as to what you saw in the quarter from an industry perspective?

You didn't really talk a lot in your prepared remarks about the industry and I thought the comment, Deb, that you made at the end of your prepared remarks that sales allowances were flat year-over-year was interesting.

So just wondering if you could discuss how you maintain those given the industry challenges.

Thanks.

Clearly, the industry overall global was up 4.5% for the year and we saw growth through the end of the year.

Hasbro was the number one player in December according to NPD.

We saw share growth in most every market in which we participate in where we have data.

We saw great growth in emerging markets, including double-digit growth in China, significant growth in Russia and growth in Brazil, which is one of the markets that was down a bit for the year yet we grew revenues and share in that market.

So overall, I would say the industry saw strong growth.

We saw strong share growth in several categories, three major categories of the industry the way the NPD data looks at it and we were the number one company across five major categories of product, including dolls, arts and crafts, outdoor sports, games, plush, action figures.

So we see a market that is ripe for story-led brands backed by strong innovation and insights that embrace digital and are executed globally with incredible teamwork and that's what we did and that's what we will continue to do.

Okay.

I guess the answer is we see growth in the industry.

So I'm not sure exactly what your question --.

No, that hit it.

And then your sales allowances were indeed flat year-over-year, so there was no pressure for you to promote more than normal or (multiple speakers).

Our DSOs are down by two days.

Our inventory levels year-on-year are up $3 million or basically flat year-on-year.

We didn't experience any kind of extraordinary sales allowances and we entered the year -- I looked at retail inventories knowing that would be an area of discussion.

And if you look at the brands where we have retail inventory that would be an increase versus a year ago, you have Princess and Frozen where we didn't have the brands a year ago.

You had Star Wars where a year ago we really were out of stock coming out of the movie and now we are set up well for the spring initiatives around Rogue One, around the 40th anniversary and then of course head into the new movie in December.

We have inventory around Nerf.

We've had great success across a number of initiatives and of course, we have a new initiative coming there in Nitro.

And of course, Trolls, which performed incredibly well.

We had really worked hand in glove with DreamWorks and now Universal.

The brand really resonates in the toy space, as you would imagine it would and we are very excited about our initiatives coming into 2017.

That's good.

And just on Star Wars, you mentioned, Brian, that Star Wars declined slightly year-over-year, but that was related -- that was commentary related to the overall portfolio.

Just wondering if you could give us a little color about Rogue One.

And what I am trying to also understand is how boys would have done if you adjusted for Force Friday, which was in the quarter this year and not last year and then also along those lines what the POS for the quarter would have been on a calendar basis since the fiscal quarter ended on 12/25.

I'm just trying to get apples-to-apples.

Yes, look, overall, I think it's important to note for Star Wars our POS in 2016 was up versus 2015 for the brand.

And clearly, we tried to indicate quarter-on-quarter, we saw a different template in 2016 than 2015, but overall we believed the brand would perform similar to 2015 and it in fact did.

Obviously, in the fourth quarter, it was below the prior year.

If you look at the differences in timing, clearly, that plays a bit of a role about Star Wars in the fourth quarter, but I would tell you, if you look at our online business, particularly in the US where we have great data, overall online sales were up 3 times that of our overall POS.

So our overall POS in the quarter was, in the US, was up 10%.

So it was better than 3 times online and one of the key areas that was really growing for us online was Star Wars and so we had some great initiatives there and clearly helped to drive our overall online POS.

So Star Wars was up.

So I think that as we go forward on Rogue One, I'm sure that there will be even more engagement in that story as more and more kids catch on to the story.

The movie didn't really come until mid-December and then, of course, we have a wonderful 40th anniversary product I know our fans and collectors are very excited from all of our social scraping and listening we really see their excitement around the 40th anniversary.

And then we will segue again into a fall event and head into The Last Jedi and so, again, I think we are set up well for Star Wars this year.

Okay.

Thanks for the help.

Appreciate it.

Eric Handler, MKM Partners.

Two things for you.

First, as you look at your quarterly revenue cadence for 2017, I'm sure you will probably give more data at Toy Fair, but the way Beauty and the Beast is tracking theatrically is very, very high and the movie is being very well-regarded.

How do you think that may impact your revenue cadence for the year?

Secondly, as a follow-up to comments you just made about online revenue being up 3 times versus overall POS, is there any difference between your online margins and your bricks-and-mortar margins?

So let me take the Princess question first.

So remember, a year ago, we were just launching our Princess business and what we saw throughout the year was great results in Princess and Frozen and in fact we performed at a very high level and our retailers felt very strongly about our product offering, the innovation.

We got a lot of really positive consumer takeaway and consumer feedback as well.

But one of the other things we saw throughout the year, particularly early in the year and then it continued throughout the year, was this baseline of POS related to the prior product, the product from the predecessor licensee.

And in fact, if you took the full year, it was probably on average between Princess and Frozen about 25% of overall POS related to product that had been shipped in in 2015 and in 2016 given their window to ship.

So we clearly see Princess as just the early days and we have said before that we believe long term that we can grow the Princess business to be far bigger on average in a given year than it had been in the past and we don't really change our thoughts about that.

The team has done a great job in innovative product.

I think one of the keys to that, as you look at holiday sales, you get to online and a good segue, one of the key items that sold online was the 11 pack of our princesses, meaning all 11 princesses offered as an online pack and it was one of our key items for the holidays.

People loved that shimmering doll and that was one of our top sellers.

If you look at online overall, we clearly have gone through a learning curve.

We continue to go through a learning curve in how you do packaging different, how you create digital assets and so there's been some initial costs related to that as we build our capabilities as a company and design and development, but I would also tell you overall there is no long-term difference or cost-of-business difference long term between brick-and-mortar and online.

In the short term, we've clearly built in those investments into our P&L that has been expressed over the last couple of years, but long term next call it two to four years, we should be in a position where there is -- again the costs are very similar in cost of business, but you've got to work through all the initial startups of frustration-free packaging, digital assets and how you develop solid-packed product, but, again, we've been able to accomplish an awful lot and come up the learning curve relatively quickly.

Thanks, Brian.

Stephanie Wissink, Piper Jaffray.

Just a couple of clarification questions.

Brian, I think you mentioned to use GAAP operating margins as a starting point for 2017.

That's a little bit different than I think how most of us model.

So just curious if we should be adjusting out some of the addbacks that you had this year, if you would like us to use that fully impacted number as a starting point.

And then, Deb, just one for you as we think about the 53rd week that does fall at a pretty sizable revenue period for you as we end this year, so can you talk a little bit about the benefit of what you are expecting in 2017 from that additional selling week?

Thank you.

Overall, if you take the GAAP number we reported, it was 15.7% operating margin clearly at full year on adjusted of 16.4%.

The point I make is that, over the last three years, we've had improving operating profit margin consecutively and we would expect to continue to improve operating profit margin over time.

And I believe that the 16.4% portends the longer-term future of Hasbro, but we need to continue to build a relentlessly repeatable model.

We need to be able to execute at that level that would enable us to get there on a sustaining basis.

So therefore, I would encourage you to model, based on 15.7%, recognizing that, over the last three years, we've been able to expand operating margin modestly in each and every year.

So just, again, I think everyone at the Company is very focused on long-term achieving that kind of 16.4% level on a regular basis, but we also know that that took tremendous performance and I think every factor that could go for us went for us.

And again, I think that I'm just trying to give you some help as you think about your modeling.

And as far as the 53rd week, what we find is the 53rd week actually comes early in the year for us because our year ended 12/25 in 2016 and it ends 12/31 in 2017.

So it really kind of comes at the beginning of the year versus the end of the year for us.

So we will find while we've got some more expenses, it just generally blends out over the course of the year.

Thank you.

Greg Badishkanian, Citigroup.

You have a very big entertainment movie slate for this year.

How do you feel how it's spaced and the different cannibalization within different categories?

How additive do you think that could actually be to sales this year?

I think in addition to a great calendar that is stretched all 12 months, we've talked about how the old days of summer movies has now become year-round movies that are all -- can be toyatic and contribute to our business.

So you start in the first quarter with great initiatives like Beauty and the Beast.

We have a new Spiderman that, as I said, I am particularly excited about.

You've got Guardians 2 and wait till you see our Dancing Groot.

It is quite a fun product and then you get into, in the fall, in Marvel, Thor, which again part of the Avengers.

Then, of course, we have our own Transformers.

We have a My Little Pony movie coming in October.

We get into the holidays with Star Wars.

So I think it's really stretched out.

The other thing that is interesting is the difference in globality between -- let's just take three properties.

So there is a great opportunity.

Marvel is one of the more developed boys action properties with about 55% of revenues or better coming in international markets, so our Transformers business is roughly split, but has been growing more internationally over time.

And then Star Wars is a little less internationally-oriented, but I think over time, again, as we partner with Disney, we will grow it to be more global.

So don't just focus on the US marketplace, but rather the global marketplace as we think about how we run these initiatives and brands.

And so I think we partner really well with our studios partners and again are working to continue to grow those businesses.

And the play patterns, innovation and focus for each of our teams -- we have dedicated teams on each of those brands and businesses -- enable them to really focus on bringing the best ideas to each of those properties and we treat all those properties like our properties because we are a great IP owner and a great partner.

Great.

And it sounds like wherever you had elevated inventory, those were in your stronger brands, so it didn't really impact your sales allowances, but obviously your competitors have talked about that impacting their businesses.

So would you expect an uptick in promotion from some of your competitors in Q1?

Would that have any impact on your sales or your need to promote products as well?

We really have looked at where we are with retail inventories.

Remember, our inventories at Hasbro are roughly flat to year ago.

And if you look at retail inventories and you add up the increments, it's in the brands I outlined earlier, which are all strong brands where we had lesser inventory a year ago for good reason.

Meaning Princess was just starting as was Frozen; Star Wars, we were really out of stock the year prior and now we have some in-stock to take advantage of the first half of the year.

Trolls is brand new for us.

And Nerf, of course, has had great success and we have new initiatives.

We'd seen discounted product running throughout the year on a brand like Princess in 2016 and yet with our innovation and marketing, we continue to perform.

We don't see any retail inventories impacting our full-year 2017.

So I would take a longer view, a four-quarter view to our business.

I can't really comment on what others might do promotionally, but we have our plans in place and obviously provide the same level of discounts and allowances to our retailers in this past season than we've provided in past years.

There has really been no difference.

Thank you.

Arpine Kocharyan, UBS.

Very good shipment and retail growth for the quarter obviously.

Would it be possible to share a global point of share number ex-Disney Princess and Frozen versus shipments ex-Disney Princess?

And then I have a quick follow-up.

Yes.

Our business, we would be ahead of the industry growth around the world ex-Disney Princess and Frozen.

So our overall POS would be better than the industry growth still and as I mentioned, of course, our business would be up considerably ex-Disney Princess and Frozen as well.

Great.

Great.

And then I have a quick follow-up, Brian.

As you look at the industry today and your relative outperformance both fundamentally and the strength of your stock price, could you perhaps update us on your capital allocation plans and your appetite for a transformational deal and perhaps if you could remind us for your criteria for M&A?

Thanks.

Sure.

I will take part and then, Deb, maybe you will talk about a piece.

Look, we've said that our brand blueprint has been our guiding principle and we enacted the blueprint back in 2008 after having developed a global brands focus for the Company and that's been our focus.

If you notice everywhere we've added capability, it's been around the blueprint.

It's been a way for us to execute our brands in storytelling.

We are very happy to have Boulder Media on board, our animation studio in Ireland that is going to give us some bandwidth for additional animation.

We are very happy to have Backflip Studios.

It gives us owned and controlled mobile gaming creation in addition to third party.

We always follow a similar path as we look at M&A.

The first thing we do is we partner with the best in the business and we learn from them.

Second, we develop teams and we embed teams with those partners so that we learn the business and bring that experience in-house.

And then we begin to look outside of ourselves for what capabilities we need and size and scale those opportunities relative to the long-term opportunity for the Company.

So we remain open to look at new ideas and we are also very careful to say it has to fit within our model and our model, of course, is storytelling and digital engagement and brands and that's our focus.

Right, and I agree.

And we say that all the time.

First and foremost, we invest in our business and if we see something that fits with our strategy -- and we haven't deviated off our strategy in many years -- that's what we want to look at opportunistically because that's in the best interest of our shareholders for the long term.

So absent that, we will return our excess cash to our shareholders and we do that through dividend.

We are really pleased our Board announced another dividend increase this year, 12% per share per quarter, which is just fantastic and shows that our continued belief in our business is there.

And then subject to available cash, we return cash to our shareholders through share repurchase as well and for 2017, subject to market conditions, we are still looking at about the same level as 2016 on that.

Thank you.

Tim Conder, Wells Fargo.

Congrats to everyone on the great execution.

Just a couple.

Brian, you talked about, in context of modeling for 2017 in response to an earlier question off of the GAAP as you want to continue to reinvest for sustainability being the key word there.

And then you've talked before about how Star Wars, even in a more major movie year and then a spinoff year, you had seen that around $500 million.

And then I think there's probably a similar type of context for Marvel.

Can you refresh us your thoughts on that for Star Wars and Marvel?

And then along that line, Deb, operating cash flow this year, $775 million.

Historically, you said you want that to be over $500 million and then you raised that last year.

Can you reset where we should be thinking about that going forward?

Yes.

Let me take cash flow first and then -- so I think we had really just an exceptional year this year and we did target -- I think we had $550 million to $600 million was our target in 2016.

While we are not at Toy Fair yet and will be talking more about it next week, I would expect that we would take our thoughts around operating cash flow up this year in 2017.

Tim, if you talk about operating profit margin, my point is exactly as you have said and I will repeat.

We believe in investing in our business first and foremost.

We have a lot of investments we've made that are paying dividends today and new investments that we intend to have pay off in the future.

Our return on invested capital is quite strong at about 15% and up versus years prior.

So we really do look at the way we invest in our business to set us up for the future.

Most notable in Magic: The Gathering for example we have Magic Digital Next, which has been an investment for a number of years and will continue to be a bit of investment this year because, of course, late this year, you will start to see some of the evidence of what the team has been working on as they begin to put that platform out into the market.

So my broad guidance to you is that, last year, GAAP, we achieved 15.7% operating profit margin.

Obviously, overall, we achieved 16.4% and I think the 16.4% is a beacon for our Company.

It demonstrates that when we execute with excellence, we can achieve much stronger returns and we can gain leverage off of our efforts.

But, again, over the last three years, we've improved our operating profit margin and I would encourage us to all look at something like 16.4% as a longer-term objective given that we also have in our mind's eye the ability to deliver visibility and sustainability to our revenues and earnings.

And so, again, we've expanded operating profit margin and the 15.7% is a very good number and it has improved each year over the last three years and I would expect it to improve in the near term and medium term and that was just a way of helping you guys as you think about your model.

Brian, on how we should think about year in/year out a little bit of average line, so to speak, on Star Wars and Marvel?

Sure.

Look, this year, you have a similar template that you had in the last two years where you have the period after a movie in the spring.

This year is a bit different and exciting because you have the 40th anniversary, which, as you know, will be a fun celebration among fans and families and then, of course, we get into the movie period in the fall.

So again, I would call it a similar template to prior years.

For Marvel, we have three great major initiatives.

Obviously, they have a raft of wonderful television that also supports the brands.

Spiderman, Guardians and Avengers.

As I said, I am particularly excited about Spiderman.

I think that they've done a fantastic job from everything I have seen in the trailers and the materials and just how they've really built up this character and go online and look at the wonderful trailers with Tony Stark and I think you really get an idea of just how fun the character is and how toyatic this can be.

You also have to look at things like Transformers because, last year, second half of the year, Transformers was up in a significant year.

The team has done a great job in a non-movie year and really using other streams of entertainment, including streaming content on Machinima and MCN to our fans.

Kids content and Rescue Bots, as well as Robots in Disguise mainline entertainment to drive that brand with wonderful innovation, as well as collector-oriented product.

And so this year, of course, would be a year, a movie year, which will enable us to accelerate that business further and create great product.

And then, of course, we are already lining up a wonderful movie around Bumblebee for 2018 and many of our partners also have wonderful lineups for 2018.

In 2018, in Marvel, for example, you have four great initiatives, including Black Panther, Avengers: Affinity Wars, Antman Versus Wasp and then, of course, a Spiderman animated film toward the end of the year.

So I think we go from strength to strength.

I said a couple of years ago we had entered an unprecedented era of new entertainment both from Hasbro and our partners and I believe that we are in the early innings of enjoying that.

Great.

Thank you.

Gerrick Johnson, BMO.

At this point, I've got two quick ones here.

Sales allowances?

I know you said they are unchanged, but maybe you could tell us what they run as a percent of gross sales in the fourth quarter.

And then in 2017, just simply do you expect to grow sales and earnings in 2017?

Thank you.

So let me take sales allowances.

As you know, we record our net revenues, which is in accordance with GAAP, because that's what we actually collect at the end of the day, but our allowances, they tend to be fairly stable across the quarters and the revenues that they represent.

So if you want to know specifically about quarters, you can think of it that way.

And Brian, do you want to talk about revenues?

Yes, look, we obviously don't provide specific guidance, but I think if what we've laid out is any indication, we feel very good about our year and we look forward to seeing you at Toy Fair and describing to you the new initiatives for our business.

Okay.

And Deb, would that be about 8.5%, 9%, 10%?

Looking for a ballpark number.

We don't disclose that.

We report net revenues.

Right.

Okay.

Thanks.

Thank you.

I will now turn the call back to 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 a website following this call.

And as Brian said, we look forward to seeing many of you in New York on Friday, February 17 for our annual investor update at Toy Fair.

Thank you.

This concludes today's teleconference.

Thank you for your participation.

You may now disconnect your lines at this time.