孩之寶 (HAS) 2017 Q4 法說會逐字稿

Good morning, and welcome to the Hasbro Fourth Quarter and Full Year 2017 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 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 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.

In 2017, the Hasbro team delivered a strong year.

We grew revenues 4% to a record $5.2 billion and captured the #1 position across the G11 markets for the full year 2017, according to NPD and SIM.

Consumer takeaway increased approximately 7% for the year.

And we grew point of sale in all major regions and all brand portfolio categories.

We continued investing in innovation at industry-leading levels, delivering growth in Franchise Brands, Hasbro Gaming and Emerging Brands while building capabilities across the Brand Blueprint.

We delivered revenue and profit growth in the Entertainment and Licensing segment, led by strength in Consumer Products.

We had 2 successful Franchise Brand theatrical events, which drove incremental revenue in both TRANSFORMERS and MY LITTLE PONY.

We added to our storytelling and content capabilities through an expansive 5-year agreement with Paramount, invested in our animation studio, Boulder Media, and enhanced our digital-first orientation.

We maintained a high level of profitability, reporting a 15.6% operating profit margin.

We invested in growing our business while returning $427 million in cash to shareholders.

Today, we announced our board increased the dividend 11% to $0.63 per share, the 14th increase in 15 years.

Importantly, we remained steadfast in our principles to operate with excellence.

In 2017, Hasbro ranked #1 on the 100 Best Corporate Citizens list by CR Magazine.

We were recognized as a World's Most Ethical Company for the sixth consecutive year.

And we ranked third on Newsweek's Green Rankings.

The global Hasbro team's accomplishments in 2017 were meaningful.

And we are excited about our opportunities in 2018 and beyond.

Before I discuss the year more closely, let's review the fourth quarter, including where our actual results fell short of the expectations we set in October.

Hasbro Franchise Brands sit at the center of our strategy.

And in the fourth quarter, Franchise Brand revenues grew 11%.

TRANSFORMERS, MAGIC: THE GATHERING, NERF, MY LITTLE PONY and MONOPOLY revenues increased.

For the quarter, point of sale increased in all categories other than Partner Brands.

However, after 10 months of strong consumer takeaway, the industry and our business slowed in November and December.

We have identified 3 significant factors.

First, we did not ship or sell through as much as we expected in support of the late fourth quarter release of STAR WARS: THE LAST JEDI.

As a result, Hasbro's STAR WARS revenues declined and performed below expectations in the quarter and for the year.

Historically, the brand would deliver a revenue surge in film years and shrink the following year.

Instead, we are seeing a pattern like other properties which have films every year, such as MARVEL, where STAR WARS should maintain a large, more sustainable year-in and year-out revenue level.

Recognizing this and working with DISNEY, we can better plan our business with improved visibility, sustainability and profitability over the long term.

As the film has gained a wider audience, point-of-sale in early 2018 has significantly improved and is up year-to-date, including strong growth in online sales, we're working closely with Disney Consumer Products and Interactive Media to continue to drive innovative brand experiences over the coming years, and in the near term, to leverage the upcoming home entertainment window for THE LAST JEDI and to ensure that retail is positioned to take new inventory in support of the May release of Solo: A Star Wars Story.

Going forward, merchandise on-shelf dates will be closer to movie promotional activity and premiere dates.

Importantly, STAR WARS remains a tremendous property and opportunity, one in which Hasbro is deeply committed.

In 2017, STAR WARS ranked as the #1 global property in the toy and game industry according to NPD.

And we look forward to driving this success for years to come.

Second, revenues declined 8% in Europe during the fourth quarter.

STAR WARS contributed to our European decline.

But as we have discussed throughout 2017, the region was also affected by a weakening U.K. economy as Brexit negatively impacted consumer and retailer confidence.

This impact was more severe than expected late in the year.

During the weeks leading up to the holidays, retailers became increasingly risk-averse as online grew dramatically and U.K. retailers focused on minimizing inventory and maintaining margins.

Several U.K. retailers are cutting staff in stores.

And profitability was impacted as we partnered with them to work through in-store inventory.

For the year, NPD estimates the U.K. toy and game market declined 3%.

And we estimate the EU5 markets declined slightly.

Across the European region, e-commerce is growing rapidly, representing an even bigger piece of the market during the holiday and disrupting traditional retailers' business models.

We have invested in a global omni-channel strategy to make Hasbro brands available everywhere consumers shop.

We're working through inventory carryover in Europe and anticipate we will face headwinds while we address these changing market dynamics during the year, particularly in the first half.

Third, our outlook for the fourth quarter reflected a higher level of uncertainty due to the September Toys"R"Us bankruptcy.

This uncertainty materialized and our business with Toys"R"Us was impacted in the quarter about as we expected.

We continue to partner with Toys"R"Us to support their turnaround while managing our risk and inventory.

We estimate less than half the stores in their announced closures directly affect our initial plans.

But we also expect Toys"R"Us to streamline inventory at remaining stores.

Much of this impact will be felt in the first 2 quarters of the year.

We anticipate during 2018 that we will rightsize our business with Toys"R"Us while leveraging our omni-channel model to ensure product is available throughout our retailer network to meet consumer demand.

The development of our omni-channel product and channel strategy is aligned with where retailers are expanding, notably in emerging markets in Asia and Russia and also in growing channels in developed economies.

Despite the slower end of the year, our Brand Blueprint strategy is working.

Franchise Brands grew 10% in 2017, behind growth in TRANSFORMERS, NERF, MONOPOLY and MY LITTLE PONY.

Each brand activates the blueprint differently, but the result is consistent: deeper consumer engagement, innovative brand and product experiences and increasingly expansive opportunities for our portfolio.

NERF posted its fifth consecutive year of double-digit growth and was the #1 toy and game property in the U.S. according to NPD.

We're delivering innovation that's break-frame and performance on our product that is unparalleled.

As we say, it's NERF or nothing.

TRANSFORMERS and MY LITTLE PONY both leveraged multiple content platforms, including theatrical releases, animation on broadcast and streaming sites and digital content to drive growth.

TRANSFORMERS revenue grew strong double digits.

And storytelling delivered strong engagement based on compelling insights around the blueprint for both brands.

We'll talk more about storytelling and its continued importance in brand-building at Toy Fair next week.

MONOPOLY had a strong year, including a successful Token Madness promotion and product as well as MONOPOLY GAMER, which introduced beloved Nintendo characters to the MONOPOLY game.

MAGIC: THE GATHERING finished the year strong as revenue grew in the fourth quarter, but full year revenue declined slightly.

Our investments in activities for long-term growth are taking hold, including a successful closed beta for our new digital initiative, Magic: The Gathering Arena.

As gaming platforms and audiences continue to expand globally, we have increased our focus on gaming.

In 2017, Hasbro Gaming revenues increased 10%.

Our tremendous heritage of gaming expertise is a strategic differentiator which uniquely positions us to capitalize on the dynamic opportunity in gaming across demographics and platforms.

Our new innovative social games capture the fun in gaming.

Kids, adults and families are playing games.

While many gaming brands contributed to growth, for the year, DUNGEONS & DRAGONS was particularly successful.

We also grew digital gaming revenues, and we launched new gaming experiences, such as DropMix.

Emerging Brands revenues grew 2% as BABY ALIVE continued to perform at a high level.

FURREAL FRIENDS also had a great year, including Tyler, the Tiger, which was a top toy over the holiday period.

While several Partner Brands grew in 2017, overall Partner Brand revenues declined 10%.

BEYBLADE delivered a strong first year.

And both MARVEL and SESAME STREET posted higher revenues.

TROLLS full year revenue was down but came close to 2016's movie year sales, which began during Q4 last year.

The softness in Partner Brand category came primarily from STAR WARS, as we discussed, and to a lesser extent, DISNEY FROZEN, as it is 1-year further removed from the movie year.

DISNEY PRINCESS revenues declined slightly while full year point-of-sale increased substantially, driven by the inked introduction of new properties.

Looking forward both in 2018 and beyond.

We are positioned to leverage our industry-leading investment in innovation and drive new brand experiences across our brand portfolio.

We're excited about where Hasbro is today, the progress we're making in our brands, and our organization is unlocking future opportunities for our stakeholders.

Across Hasbro, the brands where we have invested to execute the full Brand Blueprint are the ones that are producing extraordinary results and building value for our shareholders.

As we look ahead, the Hasbro team is delivering on the promise of what our differentiated, story-led and digital-first strategy offers to consumers, audiences and customers.

And we look forward to sharing more with you on February 16 at our investor event at Toy Fair.

I'll now turn the call over to Deb.

Deb?

Thank you, Brian, and good morning, everyone.

2017 was a record year for Hasbro.

The investments we've made over the last 10 years continue to bear fruit.

Overall, Hasbro revenues grew 4%.

Our Franchise Brands, utilizing the full blueprint, grew 10%.

Hasbro Gaming grew 10%.

Many Emerging Brands benefited from innovation and the category grew 2%.

Several of our Partner Brands grew, but the category declined 10%.

Much of this decline directly impacted our fourth quarter, which had revenues lower than we expected.

As Brian discussed, after 10 months of very strong performance in both sales to our customers and sell-through to consumers, the months of November and December slowed significantly for the industry and for us.

And we did not achieve the objectives we had set for the fourth quarter.

Despite this, our operating profit margin for the full year was 15.6% and strong capital management continued to positively contribute to fourth quarter earnings as it had throughout the year.

In the fourth quarter, our finance organization assessed the global tax environment, which provided opportunities to utilize tax assets and reevaluate our current and historical tax reserves.

This exercise contributed to an increase in underlying earnings per share for both the quarter and the year.

Similar to other U.S. multinationals, we recorded a provisional charge related to U.S. tax reform in the fourth quarter.

As these new laws are clarified and additional guidance is provided in 2018, this amount is likely to be further adjusted.

However, we anticipate a sustainable benefit to our effective tax rate in the future and our access to global cash that will enable us to further invest in our business for long-term growth.

Our cash position ended the year stronger than ever.

And our directors have voted an 11% increase to our quarterly dividend.

In the U.S. and Canada segment, revenues grew 5% for the year.

Franchise Brands, Hasbro Gaming and Emerging Brands increased while Partner Brands declined.

Point of sale increased in the high single digits for the year with only Partner Brands declining slightly.

Retail inventory is overall in good shape.

However, we're working through carryover inventory in select brands to begin 2018.

Operating profit in the U.S. and Canada segment declined 2% and operating profit margin was 19%.

The year-over-year decline was primarily driven by the mix in revenue, increased advertising and higher bad debt expense related to the Toys"R"Us bankruptcy filing in the third quarter of 2017.

International segment revenues increased 2%, including a favorable $75.3 million impact from foreign exchange.

Within the International segment, Franchise Brand and Hasbro Gaming revenue growth offset a decline in Partner Brand and emerging brand revenues.

Revenues increased in Latin America and Asia Pacific while Europe declined 2%.

Point of sale increased in all 3 regions, although Europe slowed late in the year.

Operating profit in the International segment declined 22% to $228.7 million or 10.2% of net revenues.

The decline in operating profit was driven by higher sales allowances and unfavorable product mix as well as higher advertising.

In addition, as we indicated earlier in the year, lower gains on FX hedges negatively impacted gross margins.

Entertainment and Licensing segment revenues increased 8%.

Consumer Products, digital gaming and Boulder Media contributed to the revenue growth.

The segment's operating profit increased to $96.4 million or 33.8% of revenues as we gain leverage in our Consumer Products and digital gaming businesses.

Overall, Hasbro operating profit margin was essentially flat, declining 10 basis points to 15.6% versus our reported operating profit margin last year.

Despite lower-than-expected revenues, our teams focused on prudent cost management and delivered good operating profit margin for the year.

Cost of sales increased to 39% of revenues.

The 100 basis point increase resulted from higher sales allowances and higher levels of closeout sales, incremental tooling expense as well as less favorable hedges.

Growth in higher-margin revenues partially offset this impact.

Royalty expense decreased 40 basis points to 7.8% of revenue from lower Partner Brand product sales.

Our investment in product development remained significant but did not change materially in dollars or as a percent of revenue.

Innovative brand experience has remained core to our strategy.

And we continue investing at rates higher than our major competitors.

Program production amortization was essentially flat year-over-year.

Amortization of our investment in the MY LITTLE PONY movie began in the fourth quarter, offset by lower amortization of television programming.

SD&A, at 21.6% of revenue, increased slightly from 21.5% in 2016, excluding the $32.9 million goodwill impairment charge.

The increase includes third quarter bad debt expense associated with Toys"R"Us, higher depreciation as well as an unfavorable impact of foreign exchange.

We received some benefit from lower stock compensation and bonus expense.

And we closely managed discretionary expenses.

Turning to our results below operating profit.

Other income was $74.1 million versus $1.8 million last year.

This included higher interest income as we generated better returns on higher levels of invested cash.

We also we realized a $19.9 million gain due to a change in the value of a long-term liability due to lower corporate tax rates associated with U.S. tax reform.

In addition, in 2016, we recorded foreign currency losses of $32.9 million.

In 2017, this was a gain of $1.3 million.

Our underlying tax rate, absent the impact of tax reform, was 19.9%.

The reduction from our previously guided rate reflects the favorable impact of tax planning and the revaluation of current reserves.

This benefit to our underlying tax rate is sustainable into the future.

Our effective tax rate for the year, absent the impact of U.S. tax reform, was 9.5%.

This includes discrete items, such as the benefit from our adoption of the new accounting standard governing stock compensation and the fourth quarter reassessment of historical tax reserves and audit settlements.

We anticipate U.S. tax reform will lower our overall underlying tax rate.

And we'll discuss this further at our investor event at Toy Fair.

In the fourth quarter, we recognized a net charge of $296.5 million related to U.S. tax reform.

This net amount included a provisional charge of $316.4 million recognized in income tax expense and the gain of $19.9 million I referenced earlier in other income.

The tax charge includes an estimate for the onetime repatriation tax liability and adjustments to the company's deferred tax assets and liabilities to reflect a lower corporate tax rate that takes effect in 2018.

As I said earlier, this number could change as there's clarification to the new law.

Adjusted earnings per share, absent the impact of U.S. tax reform, was $5.46.

On a reported basis, including the $2.33 per share impact resulting from U.S. tax reform, net earnings were $3.12 per share.

Our year-end balance sheet is strong.

And we generated $724.4 million in operating cash flow, ending the year with $1.58 billion in cash.

We paid out $277 million in dividends and repurchased $150 million worth of common stock.

In 2018, the board has increased the quarterly dividend 11%.

And we have $178 million remaining in our current share repurchase authorization.

We have a long-standing commitment to deploy capital for the best long-term return.

This includes investing in our business, rewarding our employees for their contributions to our success and returning excess cash to shareholders.

We will continue to review our capital strategies as we gain better visibility to the ultimate impact of tax reform.

Receivables increased 7% and days sales outstanding increased 6 days to 79 days, including 2 days related to the timing of collecting Toys"R"Us receivables.

The remaining increase was related to the timing of collections in foreign exchange.

Absent the impact of foreign exchange translation, receivables increased in line with constant currency revenue growth.

Inventories increased 12%.

Absent foreign exchange, inventories were up 5% with half of this increase due to new markets we entered during 2017.

Our overall inventory at Hasbro is in good condition and associated with growing brands.

With respect to retail inventory, our commercial teams in most markets collaborated to sell through and clear inventory heading into 2018.

We continue to work through higher-than-desired retail inventory levels, primarily in Europe, as we begin the year.

The teams addressed significant issues in 2017, including the Toys"R"Us bankruptcy, a shifting retail landscape, the implementation of tax reform and a slower-than-expected holiday season.

While the last 2 months of the year were below our expectations, our strength through most of the year, combined with our strong financial discipline, delivered a very good year.

We continue to execute our strategy with excellence.

And we're excited about our product lines, innovation and offerings in 2018 and beyond.

We look forward to sharing these with you at our Toy Fair investor event on February 16.

We will now open the call up for questions.

(Operator Instructions) Our first question comes from the line of Steph Wissink with Jefferies.

Deb, we want to focus on the inventory cleanup, and then just have you give us some perspective on the cadence of the first half.

I know there's some comparison effects that are unique this year.

So if you could talk about those 2 inputs, both the inventory cleanup in Europe at the retail level, and then the comparisons for particularly STAR WARS and any other effects that we should be considering in the first half on both the sales and earnings.

Sure.

As far as inventory goes, we spend, as we said in our prepared remarks, a good part of the end of the year cleaning up the inventory that was -- at retail and making sure that our retailers had sufficient allowances to go ahead and clean that inventory up as we come into the early part of the year.

That being said, we do have some pockets of heavy inventory out there at retail that we expect will get cleaned up in the early part of the year.

With respect to our inventory, I mean, our inventory is in growing brands.

That's really where the increase is.

That, and we had a pretty significant impact of FX just because of the translation rates.

When you back that out, the majority of the increase is in new markets that we entered into this year, such as India and into South Africa.

So our new markets inventory is growing for that.

As far as our inventory, it's all in growing brands and it's in great shape.

And we do think the early part of the year, we'll be cleaning up some pockets of high levels of inventory.

But beyond that, we're not worried about the impact of it on the full year in any means.

And in terms of STAR WARS, what we saw was that Force Friday was very effective in 2015 after not having a film for a decade.

It didn't have the same impact in 2017.

I think we were too far out from the film.

We did see that initial fan response, and particularly around our Black Series product and other fan-oriented products.

Go-forward, we're partnering with DISNEY to merchandise our films closer to the movie dates and take advantage of the film marketing.

So for example, for Han Solo movie, the toys will be available in April for the May movie.

We also saw an outsized impact on STAR WARS in our international markets, particularly in Europe.

The International revenues as a percentage declined more than overall revenues.

I think as we go forward, what we see is STAR WARS as a large brand that contributes to the company with greater visibility to an extraordinary annual entertainment slate.

And the way I'd look at it would be, if you took the 5 years leading up to the 2015 movie and then thought about the way we performed last year, absent excess inventory, the next 5 years would be more valuable to us as well as to The Disney Company.

So we see STAR WARS as a major contributor go-forward, albeit at a more normalized level.

And just one follow-up, Deb, on the tax rate.

I think you're suggesting that, that 19.9% or roughly 20% is kind of the sustainable rate going forward.

Is that how would you'd like us to model starting in 2018?

I think beginning in 2018, we do see all the benefits that we got that led us from our previous guidance to that rate as being sustainable.

And that's what I wanted to convey.

We've done some significant tax planning and done a lot of work to make sure many of these attributes that contributed to the tax benefit.

Before U.S. tax reform, we're sustainable.

So I'd like to make sure people take that away because the things that we did are sustainable go-forward.

That being said, we do think that U.S. tax reform, in addition to giving us greater access to our International cash, is going to help provide further benefit to our tax rate.

We actually think our tax rate go-forward in 2018 will be between 15% to 17%.

And we'll talk more about this at Toy Fair.

But we do believe we have a sustainable lower rate go-forward.

Our next question is from the line of Michael Ng with Goldman Sachs.

I was wondering if you could elaborate a little bit on why consumer demand slowed in November and December.

I'm just trying to understand whether you're seeing any impact from the shift toward e-commerce or if there's anything changing in terms of the consumer perception of toys in general.

Thanks.

Well, actually, what we saw is just differentiated performance between different product categories.

Our Franchise Brands remained incredibly strong through the holidays, growing double digits.

In fact, we saw significant growth in TRANSFORMERS, one of our strongest growth brands, in the fourth quarter and for the full year.

NERF grew and several of our Franchise Brands grew.

We also saw great consumer demand and great growth in MAGIC: THE GATHERING and for MY LITTLE PONY.

So what we're seeing is where we're activating the full Brand Blueprint, we're seeing that growth in the consumer takeaway, where we're really engaged with that consumer on a significant basis.

We also saw in our gaming category, we saw growth.

And were it not for 1 or 2 brands, like by PIE FACE from a year ago, our games business overall performed incredibly well.

We did see a difference in consumer demand in Partner Brands and particularly across a number of different Partner Brands.

We did have some great performance from Partner Brands like MARVEL and SESAME STREET and several others.

But recall that a year ago, TROLLS launched in Q4.

So all of the revenue for 2016 was in Q4 for TROLLS.

And we said that TROLLS, for example, had, had a very good year, around the same revenue as 2016, but on a full year basis.

So therefore, Q4 versus Q4 year-on-year would be down considerably, and it was.

So between that, the impact of brands that were dissipating, like YO-KAI WATCH from a year ago that had an outsized impact in International and then, of course, STAR WARS, we do see some differentiated demand between different product categories.

So overall, we are seeing very strong consumer takeaway across several of our product categories.

And in fact, our Emerging Brands POS was quite strong.

Gaming was strong.

Franchise Brands were all strong in Q4 and for the full year.

The one area that was down in Q4 was Partner Brands in POS.

Okay.

And just as a quick follow-up, could you just remind us what your key capital priorities are?

And you mentioned tax reform being one of those things that will give you more access to International cash.

What do you expect to do with that cash?

I think as we evaluate tax reform and where the clarification for the laws come out, we'll see the amount that ultimately we'll bring back.

And we're constantly looking at what are our requirements for cash, combined with, and we talked about this a bit earlier, that we're actually earning interest income on the smart investments we're making with our cash.

So we will look at cash requirements and continue to do, first and foremost, what we say we always do, invest for the long-term growth of our business for our shareholders.

And then absent that, we will return cash to our shareholders -- excess cash to our shareholders.

The next question comes from the line of Felicia Hendrix with Barclays.

So Brian, in your prepared remarks, you highlighted a number of challenges in the first half, including retail carryover in Europe, U.K. and then also rightsizing your business with Toys"R"Us.

So I'm just trying to kind of peel back the layers there.

What would be the impact on the year of those things also inclusive of evolving more towards omni-channel?

And could this "rightsizing" drive full year revenue decline in '18?

Or are you expecting revenue growth?

Yes.

Well, we feel very good about full year 2018's prospects.

We're very excited about the initiatives that we have lined up for 2018.

We come into the year with great Franchise Brand growth, a very strong games business and great performance for MAGIC: THE GATHERING in the fourth quarter and just slightly below a year ago in full year revenues.

We have Magic Arena that had a very successful closed beta.

And we will launch Arena in 2018.

And we'll talk more about that at Toy Fair.

We have a number of product categories that are working for us.

We're going to work through the inventory that remains in Europe.

But I feel very strongly that Europe can grow again, of course, because it has grown over the last several years.

And I think that they're addressing those issues in real time.

In terms of Toys"R"Us, we've always said we had an expanding retail channel network.

We go to more doors today than ever before and more new channels, including value and drug and grocery.

And some of our biggest new retailers have really grown in places like Russia and we have very strong success in China.

And we'll talk more about the kinds of initiatives that we have going on there.

So overall, we feel very good about 2018.

But we do have some headwinds early in the year as we rightsize the Toys"R"Us business and we deal with some pockets of inventory in Europe.

And then just as an aside before I go to my follow-up, what's your online exposure now versus what was it for '17 versus what you think it could be in '18?

It continues to increase at a fairly fast rate.

In fact, POS in online is growing at about 3x the rate of our brick-and-mortar business.

But many of our "brick-and-mortar customers" and our omni-channel customers were performing quite strongly, like Walmart, who's performing quite strong in an omni-channel environment.

So overall, we're seeing very strong double-digit growth.

But we're also seeing overall POS growth for our business.

I'd say you'll continue to see online grow.

We're seeing it more highly penetrated in Asia and in Europe.

And I think that portends to the kind of percentages we should see over the next couple of years.

25% to 30% of our business should certainly be online.

Okay.

And then just on STAR WARS, I'm just trying to really understand the change because the past 3 movies now have been kind of released at the same time of the year.

And it just seems like there was more of a challenge this year and you're changing your strategy a bit in terms of merchandising and timing.

So if I may use the term, is there STAR WARS fatigue?

I mean, I'm just not understanding what's different.

Yes.

No, I'm really -- I don't see it as -- at all as STAR WARS fatigue.

I think the entertainment has been quite good.

I think it was about the timing of merchandising versus when you started to see the sell-through.

So what you have -- we had Force Friday that was quite early in 2015 because there had not been a movie out there for 10 years.

Clearly, there was a lot of pent-up demand across the board, a lot of marketing that happened very early on and a lot of both paid and earned media that happened around that brand during the 2015 period.

2016 with Rogue One, the merchandise was much closer to the movie launch.

We went back to more of a Force Friday approach with a longer window before the movie launch.

The movie marketing kicked in, and we began to really see our sell-through accelerate.

But remember, the movie was mid-December.

And by then, we were tracking below the kinds of POS numbers we had seen in prior movies.

So what's really heartening is, as people now have enjoyed the movie and more people are enjoying the movie and as we head towards the home entertainment window and those home entertainment windows are increasingly important in our business again which is great, we're seeing very strong POS growth year-to-date in 2018.

We'll head toward and are approaching the home entertainment window for LAST JEDI.

And then of course, we'll move in April to merchandise the Solo movie which, of course, comes in May.

So again, I feel that there's great vitality in STAR WARS.

And just to put a point on it, we had great results for the underlying business.

And we've seen great takeaway for the underlying business.

The size of the business is still very large.

We know it was the #1 toy and game property for the full year last year internationally or globally.

And we continue to believe it will be that kind of business for us with great visibility to entertainment and great sustainability and frankly some better profitability for us as we go forward, as we partner and go forward.

And therefore, we could have a more valuable brand over the next 5 years than we've had over the period that led up to the 2015 movie, those same 5 years.

Okay.

So the punchline just seems that people are now -- consumers are now buying the product much closer to the release than they were in the past, just given the kind of cadence of where we are in this saga.

Well, no, I think it's really more about we've entered an unprecedented era of entertainment.

There is so much great entertainment that is out there.

So just think about as one example.

You had Force Friday that launched early -- earlier and then you had a great Thor movie that came in between the launch of the Force Friday merchandise and the STAR WARS movie.

So you just have a lot of entertainment coming.

So narrowing those windows, so you're really able to take those advantage of this specific marketing and these big marketing campaigns around the brands enables you to do quite a strong job in merchandising those films.

And you see for the year that MARVEL was up for the year and MARVEL was up quite considerably in the fourth quarter for us.

It was a great performer for us.

We saw great growth and Thor contributed, Guardians of the Galaxy contributed.

Spider-man was spectacular for us, particularly in the fourth quarter.

So I think what we have to do is look at with this kind of entertainment with people enjoying so much content and entertainment, we put the merchandising closer to when the marketing for those properties really takes hold, and we start to see that great sell-through that we've come to expect.

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

Just a couple of follow-ups or clarifications.

Deb, on the tax rate, the 15% to 17%.

Is that all in or is that just federal?

And then, Brian or Deb, whoever wants to take this.

Just to clarify, the percent of your business that was online in 2017 and then just in general, broadly, do you anticipate to follow up on Felicia's question, revenue growth in '18?

So with respect to the tax rate, it's -- I would say it's [open].

There will still be discrete items as there are like settlements of audits and things like that.

I'm happy to say, whatever stock-comp benefit there is under the new tax law will be baked into our rate.

However, with that, I would have to caveat, there's still probably going to be more clarification to the tax law out there.

I think some things were not perhaps as clear as they could be.

And as the lawmakers work on clarifying that, that could have an impact on the rate.

So we will quantify that and talk about that as we see it happening along with everyone else.

But overall for online sales, I'd say it was in the very high-teens on average, but there are regions where it's much higher than that, like Asia and several markets in Europe.

And we continue to see the acceleration of online.

And as I said, 2018, we feel very good about our initiatives about the performance of our brands, the way the Brand Blueprint in our gaming businesses has grown and our Emerging Brands.

So we feel good that we can grow in 2018 and beyond as we have grown over the last number of years.

And Brian, on STAR WARS, you mentioned that if I understood you right, and correct me if I'm wrong here, that it was weaker internationally.

How do we kind of balance that versus the movie had broader distribution and promotion by Disney versus the property being weaker internationally?

Yes, look, I'd view it through the lens of the fact that we saw challenges in Europe and we saw challenges, particularly in the U.K., that's a major market for properties like STAR WARS.

So I would say that, clearly, both the paid marketing and earned marketing, the fans in the U.S. really helped to deliver a strong box-office here.

It also delivered a very strong box office globally.

But in terms of the retail takeaway and sell-in, it was lower in, particularly outsized impact in places like Europe and in our international market, just represent more of the lion's share of the decline in percentage terms.

And that's what we've seen.

So you're right, it's a great global property.

But by contrast, just to give you an example.

TRANSFORMERS' International business was incredibly strong.

The U.S. business was strong.

The brand overall was strong.

And so our proportion of international business for a brand like TRANSFORMERS or frankly, the success we had in MY LITTLE PONY this year with our film and our all-screen strategy, along with Consumer Products and gaming, that formula, the Brand Blueprint is delivering a bigger global footprint for the company.

The way we're executing our games business, including Magic the Gathering, is a bigger global footprint.

And we're getting a higher proportion of our sales internationally than in the U.S. for those brands versus a brand like STAR WARS that's still at the end of the year in 2017 more domestically oriented.

And then, lastly, you alluded to a little bit about Toys"R"Us.

Let's take the draconian that they end up having to liquidate in North America.

It sounds like you're continuing to push very hard to spread that distribution among other customer bases, which has been ongoing.

But just maybe anything on a contingency plan, anything that you can -- additional can share?

Yes, since we spoke in October, the one other element to the Toys"R"Us business, it was out there.

But for everyone's benefit, was their CVA, which is similar to the bankruptcy they executed in the U.S., the CVA they executed in Europe and in the U.K. business.

And so we are seeing the store closings in the U.K. as well that did -- that's what I talked about in my prepared remarks as I talked about retailers paring stores and personnel and certainly coming down.

Our team has built a plan for the rightsizing of the Toys"R"Us business.

We have continued to grow the number of doors and continued to grow our revenues outside of Toys"R"Us.

We continue to be supportive of them.

But most importantly, we continue to manage our risk and inventory as they streamline the amount of inventory they can take.

And we are prepared for any eventuality.

Obviously, the more time we have, the better it is.

But our teams have responded to challenges before.

You've seen how they've responded and maintained operating profit even in a challenging quarter, in a challenging finish to the year like 2017.

We understand we're working in a dynamic market.

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

Can you talk about directionally, how you see gross margin in 2018 and some of the puts and takes influencing that line?

And then separately, Brian, can you talk about your expectations for BEYBLADE in '18?

I mean, relative to past product cycle year 2, which you're in, do you typically see a spike or a peak with the brand?

So just want to know how you're thinking about that as a swing factor on '18 sale.

Yes, I'll take BEYBLADE first and then Deb should do gross margin.

On BEYBLADE, we had a very good year last year.

It was kind of comparable in pattern to years prior that first year.

You are absolutely right, Drew.

You know this business very well that BEYBLADE is performing quite a high level.

Obviously, different by certain countries.

But BEYBLADE is off to a very good start, and we would expect it to be a contributor to this year's business.

I won't specifically size it for you, but suffice it to say, you're right.

It's our second year in most countries around the world.

And with respect to gross margin.

So we were down 100 basis points.

And we said at the beginning of the year, we expected our gross margin to be down because we had lower gains on hedges coming in.

So that was a piece of it.

That was about a quarter of the impact.

We also had, because of underperformance on some of the brands that we've talked about, had some tooling impact to that as well.

So as we look forward, we're very positive on gross margin.

We see no reason why we won't get back to the levels that we had a year ago.

And we'll talk more about the puts and takes on that at Toy Fair.

But those were some of the bigger impacts on the full year.

Okay.

And then maybe one last one, Brian.

With respect to STAR WARS, were there minimum guarantee shortfalls on the property?

Or is there -- is that something that has a potential risk because you think about the brand and the licensing arrangement?

Yes.

No, no minimum guarantee shortfalls.

We continue to earn out that contract in a very strong manner.

When I talk about that ongoing business, I'm talking about a business that's quite sizable.

I'm talking about a business that's a major contributor to us and to the industry.

And I do think it's a brand over time, over the next 5 years, that could be more valuable, i.e., more revenue over a 5-year period than the 5 years that would even include the 2015 movie year.

It's more about having that visibility and line of sight to great entertainment that's coming in the future and the ability to plan and seeing less of that surge and shrink that we used to see between film years and then non-movie years.

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

Two things for you.

First, I wonder if you could dig a little bit into NERF.

You said this was the fifth consecutive year of double-digit growth.

Where is that growth coming from?

Is it new markets?

Are the existing markets still growing at a similar level as the new markets?

And how big is the opportunity to keep NERF growing at a double-digit rate?

And then, secondly, just wonder if you could do a clarification as we think about ship-in for 1Q or 2Q with the Avengers kicking off the summer movie season at the beginning of May.

Will that be a 1Q ship-in?

And then same thing with Solo.

You said that ships or that -- those products are going to be on shelves in April.

Does that mean you get a 1Q ship-in for Solo toys as well?

Yes.

So let me comment on that first.

I would expect both of those properties to have more of an impact in the second quarter, far more because of again, this -- the way we're windowing their merchandising around those films.

And so I would not count those ship-ins in any considerable way in Q1.

Obviously, we're very excited about Black Panther.

There obviously, has been ship-ins in the first quarter for Black Panther.

We're very excited about the score that it's received and the global excitement around that brand is palpable.

And we're very excited to add that to the already powerful lineup from MARVEL that's coming for 2018.

As I said before, I thought the lineup for MARVEL was among the strongest we've ever seen.

And therefore, it really impacts the fact that I think our lineup for the year is among the strongest we've ever seen.

And I've also, although you didn't ask specifically about this, as we get through the year, I've had a chance to see the Bumblebee movie and where that's coming out.

So as we even go into the end of the year, we've got strength to strength.

And Bumblebee is a delightful movie that I'm very excited to share with people as well.

And so throughout the year, we have a great lineup and schedule.

For NERF, it's really come down to great, industry-leading innovation insights driving user-generated content.

It's really the full blueprint execution.

It was the #1 property in the U.S. We're seeing strength across all the different categories.

Our rival business, very strong.

Elite was strong.

Nitro was a very strong launch internationally and a very good launch in the U.S., but yet still plenty of running room for a lot of those new initiatives.

Our core business on NERF is very strong.

And we take nothing for granted in continuing to innovate.

You're going to see new categories of innovation as we go forward.

We're seeing growth both in developed economies and emerging markets.

We continue to build out the footprint of Rival.

Our basic NERF business is very global.

And it's among the favorite products and brands around the world in any number of countries around the world.

And so again, we're very excited about what we've done there.

But it's about industry-leading innovation.

And again, it goes back to the focus on our Brand Blueprint and how our Franchise Brands have that superior profitability.

We continue to still invest and deliver that outsized profitability relative to the company average.

And we see NERF is able to grow for many years to come.

Great.

Just one quick follow-up.

So you mentioned Bumblebee.

Bumblebee coming out in late December, I think, the 22nd.

That's going to be sort of sandwiched in between the Spider-Man animated movie, which I imagine should be very kid friendly, and then you've got Aquaman.

We'll have to see how that performs.

But -- and I would think you probably have some competition from STAR WARS home-video toys around the holiday as well.

Does that make things very challenging for Bumblebee?

Now look, if you look at TRANSFORMERS, I think that we go from strength to strength.

This year, TRANSFORMERS in the fourth quarter was, in dollar terms, our biggest growing brand and overall, for the year, grew very strong double digits.

It's because we are perpetually engaged with our audience by demographic and psychographic.

We have a preschool Rescue Bots Show.

We have our CYBERVERSE focused on our core kid 6 to 9-year-old.

We continue to run a more adult-oriented content on Machinima for that fan.

Our fan business is growing in a very significant manner.

And then, of course, we have our movies.

It was a movie year, but our products were about the movie, but also about all these other dimensions of TRANSFORMERS.

So this is a brand that's working everywhere globally.

It's a brand that's exceedingly strong and getting stronger in China.

We'll talk more at Toy Fair about the major global initiatives in gaming and how this brand comes to life.

So when we talk about a Bumblebee movie, it's really the focal point of an entire blueprint activation that will take place around that time of year.

And we will bring to bear all of the different strengths and power inside the blueprint to bring Bumblebee and TRANSFORMERS to life at that time.

So we know that there is an amazing array of entertainment.

We're the beneficiaries a lot of that that's in the world today.

And we think our brand, like Bumblebee and TRANSFORMERS, holds its own.

Our next question comes from the line of Michael Swartz with SunTrust Robinson.

Just wanted to touch on advertising spend during the quarter.

Came in a little higher than I would have expected given the revenue decline.

So maybe talk a little bit about what drove the year-over-year growth there?

Was it timing?

Was it something kind of a nuance to the fourth quarter?

No.

Actually, we talked about partnering with our retailers to make sure some of the inventory that maybe was a little bit slow moving in November and December really was moving.

And it was probably more of that than anything else.

We really wanted to make sure we headed into 2018 with the best momentum behind our product as possible.

So that's really kind of what you were seeing in the fourth quarter.

I would imagine over time in '18, that advertising gets back to more of a normalized level on a full year basis.

On a full year basis.

I would agree, yes.

And that was my next question.

Just -- and Brian, you've talked about aligning the merchandising of some of these theatrical properties with the release window, a little tighter, maybe leverage some of the studio's marketing.

I mean, is that something that you think you can get some incremental leverage maybe even above and beyond historical levels going forward?

Look, I think as we've -- there's a number of levers that exist inside of the marketing elements for the -- around the blueprint in the company.

You have the traditional advertising.

You have an increasing array of digital opportunities for digital marketing and advertising, including inspiring user-generated content.

Then we have all kinds of forms of content from all the way as short as gifs to short form to streamed content or bespoke episodic content.

So it's really -- we look at all that as marketing and advertising.

So traditional advertising does change and probably does over time come down a bit.

But it's being augmented by and rounded and replaced by some of these other categories of marketing, where we're able to talk about story, and character and brand and brand engagement, where our audiences and consumers are globally.

So over time, again, I think you're seeing the benefit of the investments we've made in our own brands, including our games business and our Emerging Brands.

And that we will continue to get leverage in advertising, and marketing and storytelling.

Our next question comes from the line of Arpine Kocharyan with UBS.

A lot of my questions are answered.

But maybe I can be a bit more specific.

In terms of first half revenue growth, puts and takes, and thank you for all the color in the prepared remarks as well as the Q&A.

Given some pockets of inventory as well as sort of Toys"R"Us situation, do you feel growth in the first half could be tough to come by for the industry and for Hasbro?

Or do you feel you can fare better, given not all of those closures perhaps directly impact you?

Yes, look, I'm not going to comment by quarter on our revenues.

I've said that I think our prospects for growth in 2018 are very strong as a company for the full year 2018.

And by quarter, we're going to work through first quarter, second quarter, particularly in some of the pockets of inventory Deb has talked about in Europe.

With Toys"R"Us, as I'd said, we have a plan on how we manage our risk and inventory and support them, but also have a growing array of destinations for great products, innovative product -- product that's selling.

And we have great levers and ways to engage our audiences and consumers in those brand stories and characters, including our partners' brands.

So not going to really give any specific guidance by quarter.

Suffice it to say, I gave you some sense of where some of the shipments should occur more in the second quarter than the first quarter on some of the entertainment brands.

Right, now it makes sense.

And then going back to the capital allocation question, Brian.

You're sitting on north of $1.5 billion of cash that is now obviously, more tax efficiently brought back to U.S. than historically when you've been able to do this, you've seen an uptick in buybacks.

In terms of returns, do buybacks still make sense?

Or there's a better use of your capital that could yield higher return?

Look, our focus, first and foremost, has been investing in our business.

And we think those investments are really coming to the fore.

You're seeing it in our results.

Obviously, building our Brand Blueprint capabilities, we added Backflip, our mobile gaming business, that continues to perform in a stronger way each and every year.

We've got Boulder Media, our animation studio, allowing us to create incredible content at a much more nominal price point.

You saw or you will see from us efforts there.

We've also selectively acquired brands over time, like Micronauts, that we're now activating, writing a script around and working with our partners at Paramount as part of our inaugural effort on our new 5-year deal with them to bring those brands to life and story and to bring those out around the world.

So that's where we're going to really focus and focus our attention first and foremost.

In terms of the buybacks, so Deb will outline for you what we're thinking.

We have historically been buying back about $150 million worth of shares.

I imagine that's about where we'd be for 2018.

And that helps to take in the overhang on our stock from stock compensation.

And then, we remain open to other ideas about how to deploy our capital for the strongest return to our shareholders, are very happy to see that our ROIC has continued to increase over the last 3 years.

And absent the impact of the tax reform, ROIC hit a new high in 2017, up 2% versus 2016.

So that's how I would look at things.

Our next question is from the line of Linda Bolton-Weiser with D.A. Davidson.

I was wondering if you could just give a little more color on the gross margin performance in the quarter.

Because it was actually quite good given that you mentioned that you had to make sure that the retailers have what they needed to work through the product.

Your gross margin was only down 50 basis points versus last quarter it was down 160 basis points.

So is that all just mix?

Or is there some other factor that accounts for the gross margin in the quarter?

No, we did have a positive contribution from product mix in the quarter that between that -- and if you actually look at the performance of our business overall, and this is one of the things that we've talked about.

With respect to those long-term investments and how we see the ability for operating profit to expand, we really had a good contribution from our Entertainment and Licensing business.

So that is a very high-margin business.

So when you see the pieces all mixed together, it really comes down to that mix.

And that's one of the reasons again why we've invested in that business because overall, we see that as a great opportunity, not just to extend gross margin, but our overall operating profit margin as a company.

And then can you comment on just in terms of how you think about the Franchise Brands because we've seen some struggles by LITTLEST PET SHOP and MY LITTLE PONY did better this year.

But will that be sustainable?

Will the movie benefits be sustainable going forward?

And how do you think about moving things out of the Franchise Brands and maybe moving some Emerging Brands into there, like BABY ALIVE has been doing quite well?

How do you think about your portfolio in that way?

Well, I think first thing I would tell you is you're very insightful about the way we think about our business and we'll probably share some things with you at Toy Fair around how we think about our brands and the portfolio brands that we go forward with.

I've always said that not every brand would grow every year.

But we certainly are thinking about our brands and how to reinvent, reignite, and reimagine each brand every year.

Every brand has to be regularly reimagined.

And that's why you're seeing the success over time of our Franchise Brands.

In fact, achieving 49% of our revenues this past year, up 3 percentage points versus the prior year and up considerably versus when we started this 10 years ago.

We continue to believe that our Franchise Brands and our gaming business and the way we approach them are strategic differentiators for the company.

Will everyone of our games grow every year?

Now we've seen PIEFACE go backwards this past year.

But yet, overall, our games business has grown and our Franchise Brands have grown, and our Emerging Brands have grown offset by some Emerging Brands that haven't grown.

But I think we run the broadest portfolio and the strongest portfolio of brands with the most compelling strategy in our industry and the greatest teams in any industry.

So that's how I would view it.

And so as we go forward, we'll talk more about the storytelling for MY LITTLE PONY and our plans.

We obviously have great plans in store over the next number of years to continue MY LITTLE PONY's march in growth and to engage consumers across all elements of the blueprint.

One of the things I was very heartened about Deb just mentioned is the performance in the Consumer Products and the performance globally across other Consumer Products category, including apparel and other Consumer Products, and that's quite good for the brand as well.

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

So I was curious, what select brands do you have the excess carryover inventory in?

Also wondering if there are any payments from Paramount that might have been in the quarter.

And then the whole retail shift to just in time.

How do you feel that you guys navigated that transition?

Yes.

So the retail shift in just in time was something that we've been navigating throughout time, and we feel that we have the capability to continue to navigate in that way, reducing the weeks of supply for online and omnichannel.

We've been delevering on an overall basis to address that and also building the skill set to do that, which is also within the Brand Blueprint and the way we go to retail channels.

So we feel good about that.

Obviously, we've talked about some of the brands that underperformed in Q4.

Those are the brands where there are pockets of inventory.

And if we talk about on the corollary inventory growth, which is up a bit, it's all around brands and areas of the world where we're growing.

So our inventory is around TRANSFORMERS and MY LITTLE PONY and other brands of ours that have been growing, around games that have been growing.

And then by region, if you just took our inventory absent FX, the inventory growth is -- half of the inventory growth is just because we've opened a market in India and in South Africa.

So again, our inventories are absolutely placed where we are seeing growth in our business.

And with respect to payments from Paramount, we may have gotten some in the normal course of business, but nothing material to call out.

Our next question is from the line of Susan Anderson with B. Riley.

I guess, just a follow-up on the inventory and the gross margin.

I think you guys have said that you gave some extra retailer dollars in the fourth quarter.

How much of that pressure of kind of cleaning up that inventory came in the fourth quarter?

And then, I guess, how much more is left to come in first or maybe second quarter this year?

Well, in the fourth quarter, we did make sure that our retailers had sufficient allowances to take any markdowns they thought they needed to take to clear inventory in the quarter.

And as far as we look at it, we are adequately provided at year-end for what we think the impact is going to be go forward.

So we don't anticipate having any significant impact in 2018 from excess inventory other than they just may be a little slow to take inventory in the early part of the year.

As retailers, we work with them to clean that up.

Great.

That's helpful.

And then, I guess, just a follow-up on that previous question on the pockets of inventory.

Assuming STAR WARS particularly in Europe, maybe one of those, I guess it sounds like replenishments just weren't as strong in fourth quarter.

Did those pick up in first quarter as you guys saw POS pick up?

Or how should we think about the flow of that inventory?

Yes, I think the way you should think about it and this is what I was talking about with the expanded window of Force Friday 2. We had merchandise on shelf relatively early in 2017 in the early fall for the movie, which was consistent with what had been done in Force Friday 1 over 2015.

So we have inventory that was in the market.

We saw a great initial uptick from the fans around -- particularly around our fan-oriented products through the month of September and then into October.

And then, in November, December, as that -- you would see that pivot.

We just saw the rates of sale and takeaway below what we had expected.

And so the inventory existed at that time in anticipation of a higher sell-in and sell-through of a product for brands like STAR WARS.

And so that's the inventory that we clean up.

So in terms of where we go, go forward, we'll sell through that inventory.

Year-to-date, we're seeing very strong POS as more people now have seen the movie.

We're approaching a home entertainment window that includes electronic sell-through.

We're seeing how home entertainment windows and electronic sell-through windows are having greater impact on our business than they have in many years because people are enjoying watching content and entertainment at home, and will also help to seed the story with younger consumers, as we've seen historically as they watch it at home versus in the theaters.

And it should enable us to partner with Disney to move through the inventory and then to merchandise the Han Solo films product in the April time frame for the May movie.

Great.

That's helpful.

And just last one on digital gaming.

Can you maybe just talk about little bit more about the growth there and how big you think digital gaming could be as a percent of the gaming revenues as we look out into the future?

We take on digital gaming in a number of ways.

So we do a third-party digital gaming arrangements that's royalty income.

So it's not recognized as revenue, as more as royalty income at a very high operating margin.

And we have very strong relationships there.

Many of our brands are performing quite strongly there across a number of dimensions, including Monopoly on the Switch for this past holiday.

Then we have Backflip Studios, our own mobile gaming company, that's shown significant improvement year-on-year and our contributing brands and brand efforts, like TRANSFORMERS: EARTH WARS, which has performed quite well as their DragonVale brand and a few others in that area, And then we also have gaming arrangements in China with Tencent.

Transformers had a very successful PC online game.

And then, of course, we've talked about for Magic, building an array of digital games.

And the team has really made a lot of progress there.

We'll talk more about Arena and MAGIC: THE GATHERING at Toy Fair.

So you have a digital component there and then an increasing array of digital play as we see more global digital gamers.

So we have a very big opportunity for our company.

In fact, gaming overall is one of our big strategic differentiators.

It's an area of focus for us, and it's an area of growth.

And I expect that 2018 will continue to demonstrate that progress.

Our next question is from the line of Greg Badishkanian with Citigroup.

This is actually Fred Wightman on for Greg.

If we look at the U.K. business, obviously, that was weak, but you'd signaled that would be the case earlier in the year.

I think you'd also called out Brazil as an area to monitor.

How did that market come in versus your expectations in the quarter?

Yes, Brazil was about where we thought it would be.

It was down.

What we really saw in Brazil I would view as much more a short-term issue.

We saw a competitive product being deeply discounted, and it put pressure on the market in an environment where you have a -- had a political environment that was a bit less stable and a consumer confidence that was a bit shaky temporarily.

We're already seeing the opportunity in Brazil for 2018.

The teams feel good about our market position.

We just had Toy Fairs down there, and the response to our product line was quite strong.

And retailers are better positioned as we go forward and some of that very low-priced product that was being cleared through the market from others should dissipate.

Great.

And then if you look at the other income contribution in '17 versus last year, it was up pretty significantly.

Some of that is due to interest income.

But could you sort of walk through some of the nonrecurring items that we should be keeping in mind when we're modeling '18?

Absolutely.

So we -- and we'll put a chart up on this at Toy Fair, too, just to kind of help you how we're thinking about it.

But from '16 to '17, we had a big FX loss in the fourth quarter of '16 and we had a small gain in '17.

And we would expect, on a normalized basis, to -- while we can't properly or thoroughly predict foreign exchange impact, we would expect that to be more recurring.

However, we also had a large gain on the remeasurement of a liability that was about -- it was $19.9 million.

And that specifically related to the new tax rates under the U.S. tax law.

So that would be nonrecurring.

However, we continue to earn a high rate of interest on our better investing of cash that we have.

We also continue to have consistent performance with our share of the Discovery Family Channel.

And it's the same as we've talked about all year.

So we saw a repeat in the fourth quarter about that.

So those are the types of recurring things.

And then the nonrecurring would be the large FX, which we can't predict and also, the tax remeasurement that was in non-op.

Our final question is from the line of Jim Chartier with Monness, Crespi, Hardt.

I just wanted to talk about the industry growth and how you guys are thinking about industry demand.

You've had a slowdown over the last 18 months following pretty strong mid-single-digit growth for 2 or 3 years and flattish or down POS for the industry in fourth quarter.

So how are you thinking about the industry going forward?

And is the fourth quarter slowdown impacting the way that retailers are thinking about the category?

Look, we still believe that there will be a low- to mid-single-digit growth in our business in developed economies.

We'll probably see low single-digit growth in most developed economies around the world.

We see stronger growth in many markets of the world, like Russia and China, and we're participating in that.

We would expect double-digit growth, absent FX over time, in emerging markets.

Obviously, this past year, we had 5% emerging market growth.

Absent FX, again, due to some of the -- we see short-term issues in places like Brazil.

And we feel good that the industry will continue to grow with great innovation.

And we've grown over time our market share and also grown in excess of industry growth.

And we'll continue to want to make that progress.

We think that executing the blueprint strategy in our games business, we'll talk more about at Toy Fair, both of those can help lead our growth.

At this time, I will turn the floor 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 2 hours.

Management's prepared remarks will be posted on our website following this call.

We look forward to seeing you at our investor event at Toy Fair next Friday, February 16, and Hasbro's first quarter earnings release is tentatively scheduled for Monday, April 23.

Thank you.

This concludes today's teleconference.

Thank you for your participation.

You may now disconnect your lines at this time.