JAKKS Pacific Inc (JAKK) 2004 Q2 法說會逐字稿

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  • Operator

  • Good afternoon. My name is Michelle and I will be your conference facilitator. At this time, I would like to welcome everyone to the JAKKS Pacific 2004 2nd Quarter financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star (*) then the number one (1) on your telephone keypad. If you would like to withdraw your question, press start (*) then the number two (2) on your telephone keypad. Thank you.

  • I would now like to turn the conference over to Mr. Jack Friedman, Chairman and CEO. Please go ahead sir.

  • Jack Friedman - Chairman and CEO

  • Good afternoon ladies and gentlemen. I am Jack Friedman, Chairman and CEO of JAKKS Pacific. Thank you for joining us to review our results for our 2nd quarter and six months ended June 30, ’04. With us today on the call are Stephen Berman, President and COO; Joel Bennett, Executive VP and CFO.

  • I will provide an overview of the quarter and our operational results and then Joel will provide detailed comments regarding the financial results. I will then conclude the prepared portion of the call with highlights of our product lines and current business trends before we open the call up to questions.

  • Before I begin, I would like to point out that any comments made about future performance, events or circumstances, including estimates of sales and earnings per share for 2004 and forward-looking statements subject to Safe Harbor protection under the federal security laws. Such statements reflect our best judgment today based on current market trends and conditions, and are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected in forward-looking statements. For details concerning these and other risks and uncertainties, you should consult our most recent Form 10K and 10Q filed with the SEC as well as the Company's other reports subsequently filed with the SEC from time to time. With that, I will begin.

  • We are very pleased to report such strong results for our first-half of 2004. 2nd quarter ’04 revenue increased 49% to $109.4m and net income increased 62% to 9.9m from the same period last year which was significantly better than expected. This has been an exciting quarter for JAKKS Pacific as we achieved record revenue and net income, and we closed the acquisition of Play Along in June. Of the 109.4m, contributions from Play Along for the last two plus weeks of the quarter were approximately 8.9m. Our performance during the quarter was driven by a culmination of our advertising, marketing, and our product development efforts both domestically and internationally. We continue to execute our target marketing plan, and this has enabled us to secure more and better quality shelf space at our key retail partners, to expand into non-traditional toy stores, and to increase consumer awareness of our new and existing products. The end result has been stronger diversified sales, higher operating margins, and improved earnings. We had several strong contributions within each of our product categories, including WWE action figures, Dragon Ball Z, and TV games in our traditional toy categories, Vivid Velvet in our activities category, and license kites in our seasonal category.

  • In addition to our existing business performing extremely well, we received approximately three weeks of revenue from Play Along after closing the acquisition on June 10. Play Along is an exciting addition to the JAKKS portfolio as it not only strengthens our category offerings with well-known brands and licenses such as the new-to-be introduced Cabbage Patch Kids, Care Bears, Teletubbies, and Batman, but also it comes with an experienced, extremely capable management team. Even before our recent acquisition of Play Along, and increased advertising, and marketing expenditures, we continued to strengthen our balance sheet. Our positive operating cash flow for the quarter contributed 34m to our increasing cash position and we ended the quarter with 105m in cash and equivalents. We will continue to use our financial strength to invest in our core businesses, key long-term licensing partners, and acquisition opportunities that we believe will increase shareholder value.

  • Before I go into more details about our products and growth opportunities, I will turn the call over to Joel Bennett for a review of our financials for the 2nd quarter and first-half of ’04. Joel.

  • Joel Bennett - Executive VP and CFO

  • Thank you, Jack. 2nd quarter net sales increased 49% to 109.4m in 2004. This compares to 73.3m in the comparable period last year. Excluding the impact of non-cash, stock-based compensation and restricted stock charges, and also one-time charge in 2003, net income increased 62% in the period to 9.9m or 38 cents per diluted share. This compares favorably to 6.1m or 25 cents per diluted share for the 2nd quarter of last year. The sales of 109.4m for the quarter include only 8.9m in sales from Play Along. Reported net income for Q2 including the pre-tax, non-cash, stock-base compensation and restricted stock charges of 4.3m was 6.7m or 25 cents per diluted share in 2004. This is compared to 3.2m or 13 cents per diluted share in 2003. Also included in 2003 was a one-time, pre-tax charge of 2.7m relating to a voluntary recall for one of our products, and 1.1m in stock-base compensation.

  • Net sales for the first six months of 2004 increased 30% to $183.4m, including 8.9m from Play Along, from 141m during the same period in 2003. Excluding the impact of pre-tax, non-cash, stock-based compensation and restricted charges, net income for the six month period was $15.5m or 60 cents per diluted share compared to 11.3m or 45 cents per diluted share for the comparable period last year. This represents an increase in net income of 38%. Including - the charges, including a pre-tax charge of 6m for the stock-based compensation, net income was $11m or 42 cents per diluted share for the first six months, including charges related to the voluntary recall net income was 9.2m or 37 cents per diluted share in 2003.

  • Sales of traditional toys which includes Wheels, action figures, TV games plush dolls and promotional products were 62.1m for the 2nd quarter and 103.1m for the first six months of 2004, compared with 17.3m for the 2nd quarter and 29.6m for the first six months of 2003. This represents approximately 56.7% and 56.2% of overall sales respectively for 2004, and compares to approximately 24% and 21% of overall sales for 2003. This includes approximately 8.1m from Play Along.

  • We are excited by the momentum that we are gaining with TV games and the line of Plug It In and Play TV products as well as our WWE, Dragon Ball action figures and Extreme Sports toy products.

  • In our seasonal product category which includes Go Fly a Kite, Funnoodle and Storm Water toys and junior sports items, sales were $8.8m for the 2nd quarter and $18.1m for the first six months of 2004, as compared with 10.7m for 2nd quarter and 33.5m for the first six months of 2003. This represents approximately 8% and 9.9% of overall sales, respectively for 2004, as compared with 14.6% and 23.8% of overall sales, respectively, for 2003. We saw an overall decline due to the removal of our Storm Water Guns and Foam Balls from the market, and plan to re-launch the Storm product line in 2005. Art Activities and Writing Instruments, which consists primarily of our Flying Colors and [Pentech] divisions, sales were $26m for the 2nd quarter and $41.3m for the first six months of 2004, as compared with $36m for the quarter, and 60.2m for the first six months of 2003. These represent approximately 23.7% and 22.5% of overall sales, respectively, for 2004, and 49.1% and 42.9% of overall sales for 2003. In this category decreases in sales of our Tongue-Tape candy and compound were offset in part by sales of Vivid Velvet lines as well as My Overstuffed Life, our new scrap-booking line as well as the general back-to-school license and non-license products.

  • Finally, international sales were $12.6m for the quarter and $20.9m for the first six months of 2004, as compared to $9.3m for the quarter, and $17.5m for the first six months of 2003. This represents approximately 11.5 and 11.4% of overall sales for 2004, and 12.7 and 12.4% of overall sales for 2003.

  • We have laid groundwork to penetrate new international territories and add new distribution channels around the world. We expect several JAKKS lines including TV games, Vivid Velvet, WWE figures and Nickelodeon art activities to be the drivers in this area.

  • Gross margins for the 2nd quarter and first six months of 2004 decreased 40 basis points and 10 basis points, respectively, from 2003. Lower product and tooling costs were offset in part by higher royalty expense including TV games developer royalties. This is due in part to a shift in the product mix to more licensed products. As a result, royalty expense increased in dollars and as a percentage of net sales. SG&A expenses for the quarter increased $8.2m to $32.1m or 29.3% of net sales, compared to 32.5% of net sales in the 2nd quarter of 2003.

  • To remind you, Q2 2004 includes 4.3m in stock-based compensation and Q2 2003 included $3.8m in costs associated with the recall as well as stock-based compensation. Excluding these charges SG&A still decreased 190 basis points as a percentage of sales. The dollar increase is due primarily to our increase in advertising, marketing and product development spending as well as the addition of overhead and operating costs associated with the operations of Play Along.

  • For the first six months of 2004, SG&A expenses increased $13m to 56.8m or 31% of net sales which is comparable to the first six months of 2003. Q2 2004 includes $6m in stock-based compensation and Q2 2003 included 2.8m in costs associated with the recall and stock-based compensation. Excluding these charges, SG&A still decreased 130 basis points as a percentage of sales. This dollar increase is due primarily to our increase in advertising, marketing and product development spending; again, as well as the addition of overhead and operating costs associated with the operations of Play Along.

  • Our operating margins for the 2nd quarter and first six months of 2004 increased 160 basis points and 130 basis points, respectively, compared to the same periods in last year, excluding the recall and non-cash charges. We expect these margins to continue to improve over the course of the year.

  • For the quarter, with no new releases, our video game joint venture broke even. This compares to having provided a profit of $200,000 for the prior year and for the six months the JV profit of 400,000 was comparable to the prior year. We expect to see the JV contribution to accelerate in the 2nd half of the year as we release new full-priced titles.

  • Cash flow from operations for 2004 was $16.6m for the quarter and $38m for the first six months. This is up from $1.1m in Q2 ’03 and 7.8m for the first six months of 2003. Our financial position remains very strong even after the acquisition of Play Along and we ended the quarter with $105m in cash and marketable securities, and 192m in net working capital.

  • Accounts receivable increased sequentially to $92.1m from $76.5m due to the increase in sales as well as the addition of Play Along pre-acquisition receivables which result in DSOs of 75.8 days down from 92.4 days in the previous quarter.

  • Inventory likewise increased to $56.7m from the March 31st balance of 44.8m with DSIs of 89.4 days, down from 108.7 days. As we move out of the back-to-school inventory build-up, we expect to see levels return to seasonal norms. In addition, we expect to continue to improve cash flow and reduce working capital needs, both of which will have a favorable impact on our return on equity in the coming years. Now I'll return the call back to Jack.

  • Jack Friedman - Chairman and CEO

  • As we look forward to the second-half of 2004, based on responses from our customers and early indications for Fall and holiday sell-ins, we are excited about the remainder of the year. We have strong contributions from virtually all of our product categories, and I would like to highlight a few of our lines that we are especially excited about. We will also address a few areas where we have room for improvement. Then we will open the call up for questions.

  • A number of our Evergreen brands and licenses have performed well this year. We are expecting a strong latter-half of 2004 from them as well. These include WWE action figures which have been a part of our portfolio for nine years, Extreme Sports vehicles and figures part of our line-up for the past five plus years, new SKUs in or Blues Clues product line which has been on shelves for over seven years, and Sponge Bob art activities and stationary items which have been in our portfolio for over four years. Further, our non-licensed and licensed stationery products and kites have performed quite well to date.

  • TV games have been an outstanding contributor, largely due to our first mover, Advantage. Demand for Plug and Play products has quickly grown and we have become the industry leader in Plug It In and Play video games. Our TV games ranked #1 in The Toy Book for three months in a row. We believe we have secured the top licenses with premier companies such as Atari, Namco, for Pac-Man and Ms. Pac-Man, Midway, Capcom, Activision, Nickelodeon, Disney and Marvell, and have alliances with top video game developers. We have begun to expand our distribution of the games to international markets including Europe, Australia and New Zealand, and expect to announce shortly several additional, significant TV game licenses later this year. We believe this product category will become a stable of our product offering for many years to come.

  • With the acquisition of Play Along, we immediately strengthen our category offerings while expanding our shelf space at all our major customers. Play Along adds such well-known brands and licenses as Care Bears for Plush and Preschool learning, Teletubbies for preschool and play sets, and DC Comics, Batman and Justice League of America for construction toys. Under Play Along, we will introduce shortly, Cabbage Patch Kids this fall at retailers nationwide and expect the line to contribute nicely. Cabbage Patch Kids, the hottest toy of the 1980s, is coming back to retail in a big way. Our Cabbage Patch line is on the water and will hit shelves this August. We will ship over 1 million units into the U.S. as well as quantities into Canada, UK and Australia. We believe this is one of the most highly anticipated new toy lines for 2004. Each doll also comes with a special birth certificate and adoption papers. These are the same style dolls that were introduced by Coleco back in 1983. To date, over 95 million Cabbage Patch dolls have been sold worldwide.

  • Under our Care Bears brand, the brand continues to be #1 in the Plush category. In the quarter we began to ship our new Fit and Fun Bears which follows-up on our 1 million plus selling Sing A Long Bears for Holiday 2003. The Fit and Fun Bears ask kids to get up and get in shape by leading them on a fun-filled aerobic workout. These new-feature Care Bears look - expect to be on every top-ten toy list for this coming holiday say many of our customers, just as the Sing A Long bears were on most lists in 2003.

  • The diversity of our back-to-school products placed in retailers ranging from Michaels to WalMart including stationery, writing instruments, and lunch boxes, among others should enable us to have a strong back-to-school season especially with the addition of the Color Workshop lines including the glow pen products.

  • Even though the first-half of 2004 has been a record, we have identified several categories that we believe we can improve in order to achieve JAKKS Pacific's full potential. As mentioned earlier this year, our Storm product line of water guns and foam balls did not perform up to our standards and we temporarily withdrew these products from the market. In addition, some of our art activities and writing instrument products did not perform up to our expectations. However, we have identified and are correcting the reasons for the underperformance and expect these categories to improve over the latter half of this year and, particularly in 2005 as we re-launch the Storm product line.

  • During the latter half of 2003, we refocused our efforts on a number of key strengths including our diversified product offerings, and leveraging our advertising and marketing talent with our diversified retail base. We made, we think, the appropriate investments in our marketing and advertising during the past 12 months and the returns are even exceeding our expectations.

  • In closing, we remain focused on creating innovative products and working with top licensors which we will continue to leverage as we increase shelf space with our existing retailers as well as expand our distribution channels. We will continue to reinvest in JAKKS by increasing advertising and marketing initiatives prudently as well as design and marketing personnel to make JAKKS Pacific more profitable and further growth across the board. Overall, we are quite excited about the opportunities available to us and we expect to continue to deliver both sales and earnings expansion throughout 2004 and beyond. With that, I would like to open this meeting to q-and-a.

  • Operator

  • At this time, I would like to remind everyone, if you would like to ask a question press star (*) then the number one (1) on your telephone keypad. Your first question comes from Tony Gikas from Piper Jaffray.

  • Tony Gikas - Analyst

  • Hi, good afternoon guys.

  • Unidentified Speaker

  • Hi, Anthony.

  • Tony Gikas - Analyst

  • Have you - now that you have closed the Play Along acquisition and had a little bit of time to take a look at it, has there been any update for us in terms of integration of that business? Any sort of financial estimate changes we should be aware of and how confident are you that the brands that come along with that business are Evergreen brands versus brands that potentially have a shorter life cycle? Then the second question, could you just breakout what we might see in terms of the stock-base comp and restricted stock comp charges on a full-year basis?

  • Jack Friedman - Chairman and CEO

  • Okay, I'll give Joel the second question first and then I'll try to answer your long, first question,Tony.

  • Joel Bennett - Executive VP and CFO

  • Basically, on the restricted stock charges it runs approximately $800,000 a quarter and it would fluctuate based on the stock price. On each quarter, the current shares that are then vesting are basically mark-to-market at the end of each quarter. On the option comp the rough gauge is there’s about 500,000 shares that are subject to the variable counting treatment, so at the end of each quarter any dollar change would result in expense of $500,000 per dollar move in the price. So, you can basically monitor it from month to month within the quarter. For example, the 3.450m for this quarter, the stock price went from about $14 to 19 or thereabouts. So that can vary dramatically depending on what the stock price does.

  • Jack Friedman - Chairman and CEO

  • Your first question. Sorry, if I can still remember itTony. The second part of it was, what is our confidence level on some of these brands becoming Evergreen. Do I have that right?

  • Tony Gikas - Analyst

  • Yes, and then the first part of it was how is the integration going? Is there any changes (sic) that you've recognized in terms the financials of that business since you've had a little bit longer time to take a look at it and start to – (multiple speakers)?

  • Jack Friedman - Chairman and CEO

  • The first part of the question, there has truly not been any time to do any sort of integration except constant communication between our offices and their offices, and we will continue to look at savings such as warehousing and those kinds of things down the road. None of those have taken place to date.

  • The second part of your question regarding Evergreen products - there has been an adage in the toy industry for about as long as I've been in it that it takes a toy brand/line four years of success to become an Evergreen and I think the reason for that is that after four years you’re getting a new generation of kids who have interest in those brands. In the first two ,three years it's often the same kids adding on, adding on. Some of those example is Mattel came out with dancing, sing a long Elmo some years ago, and found that it did very well and finds that it needs to refresh that just about every year, but have created an Evergreen brand of a TV promoted, action, preschool, plushy kind of figure. This will be the second years in our new Care Bears brand and it's looking quite exciting to date. We hope and anticipate that that will be the same. As far as the full array of Care Bears products go, the first time around some years ago - I don't recall how many years ago was the first time - probably twenty some odd years ago, it was quite successful for a number of years. We are hoping and anticipating that, but I would still use the four-year adage to know at what level it can maintain that. Another one last example of that is our WWE wrestling figures which have fluctuated, but have stood the test of time and we certainly consider it an Evergreen brand in our array of products line. One just one last one that Stephen just dropped me a note on is Power Rangers is one of those that came along and is now probably over a decade lasting as an Evergreen product line. But, some of it is still unknown, Tony, on certain new product introductions.

  • One curious thing, if you look at what's selling in the toy business today, you would see products like Transformers which is a rebirth, Care Bears, another one My Little Pony from Hasbro, so there have been lots of product lines that take a rest and then come back and succeed all over again; kids being kids from one generation to another with certain changes, of course. But, we are quite excited about our product lines and many of these re-come-back product lines which our TV games kind of fit into that too in many cases with Pac-Man and Ms. Pac-Man, many of those kids are now the parents who go – oh, yes, I remember Ms. Pac-Man, I loved that, or I remember Care Bears, I loved that as a kid, and that's part of what helps you build it from day one rather than something brand new, out-of-the-box. Did I answer your question?

  • Tony Gikas - Analyst

  • Yes, that's adequate. You addressed in the press release that you seem to have a bias towards the upper end of the range that you had given for the earnings which I think was $1.75 to $1.80. Could you update us on the revenue side of that?

  • Joel Bennett - Executive VP and CFO

  • Basically we're, in effect, reaffirming the guidance that is out there which is approximately 440m top-line, and $1.75 to $1.80 for the non-cash charges that we had mentioned.

  • Tony Gikas - Analyst

  • Okay. Thanks a lot, guys.

  • Jack Friedman - Chairman and CEO

  • Thank you.

  • Operator

  • Your next question comes from Arvind Bhatia with Southwest Securities.

  • Jack Friedman - Chairman and CEO

  • Hi Arvind.

  • Arvind Bhatia - Analyst

  • Good afternoon guys, and a great quarter.

  • Jack Friedman - Chairman and CEO

  • Thank you.

  • Arvind Bhatia - Analyst

  • My questions relate to TV games. I know you talked about how they are doing extremely well at retail. I just wonder if you could maybe quantify that a little bit more. How much [inaudible] performance are you seeing at retail, and if you could provide some more color on your number of SKUs that you expect this year domestically and internationally, and then one concern I've heard from people is what's the audience for TV games? Is it, in your opinion, a bulk of it, even though I think you were saying that a lot of people are buying it, but is the teenage population a big chunk of this and is that a risk? And then, what is your sense of the knock-offs coming out of the market in the TV game category?

  • Jack Friedman - Chairman and CEO

  • The first part of your question, Arvind. We will have nine new products on shelves in the U.S. this year versus three last year. Internationally, we I think we got one title out last year and probably approximately four will get out this year for international. As far as who the purchaser is from our in-depth research on that, the best news on it is it spans from young kids through teenagers into young adults which we think is great. Sponge Bob as example, sales are very strong on it. We recently introduced and got on shelf, only in the past two weeks, Ms. Pac-Man which looks sensational so far.

  • Arvind Bhatia - Analyst

  • Is there a risk that there are a lot of competing products in retail this Christmas?

  • Jack Friedman - Chairman and CEO

  • I am sorry I didn't answer that part of your question Arvind. There are knock-offs out there if that's the right word or competitors in the category. We think that we have most of the number one titles and more to come. We've clearly become the leader in it. Our method and technology that we use in producing ours we also think gives us a pretty good price advantage over competitors to the best of our information to their pricing, and in any category you go into there are going to be some competitors, but we think we will maintain a very, very dominant presence in it. We think we’ve created a category, Arvind, that will last for a long time. Our 2005 line is already pretty well put to bed; we will be out there when Batman breaks and Spiderman next year.

  • Arvind Bhatia - Analyst

  • Okay. So the number of SKUs we should continue seeing increases in that next year or so. Should we expect that you would continue to sell the ones that you've got this year, but add more lines?

  • Jack Friedman - Chairman and CEO

  • By next year, Arvind, we will have over 30 titles in production. We would guess as a company that probably a couple or three will fall by the wayside. As we expand, we also have, which we are not ready to talk about, something we think quite innovative and kind-of breakthrough for the category that we are not ready to talk about yet, which we think will give us an additional leg-up in the category.

  • Arvind Bhatia - Analyst

  • Is there any way to quantify it? Again, I sense that you’re really, really enthusiastic about it. I wonder if there is any way to gauge the out-performance that you might be seeing.

  • Jack Friedman - Chairman and CEO

  • I'm not quite sure -

  • Arvind Bhatia - Analyst

  • In terms of numbers, you know, if you expected it to do X, is it doing 20% better, or 30% better? Just your sense of where that line might end up being versus your expectations for the year.

  • Jack Friedman - Chairman and CEO

  • Arvind, we will unquestionably have a good year and it will be a good contributor to us for this year. It's still at an infant stage and we are not even close to knowing what up is. It is still the beginning of a brand new category. If you ask this question of Nintendo, and I am not comparing us to Nintendo by saying that, if you ask Nintendo that question the first year that Nintendo came out they wouldn't know what up was or what the potential was. It would be too wild a guess to even throw one out. Depending on what retailer you talk to, some of them have crazy ideas in their head or hopefully those crazy ideas turn to reality. We're prepared for any upside on it. We have our contacts to make our chips, our design teams, our outside design teams that we work with to ride it to the moon if it is there. We think it will be great. We don't know what great is yet. It has spread way beyond the traditional toy retailers. The various electronic chains are all running it, Urban Outfitters, Sax Fifth Avenue, Kohl's, etc. So it's expanded already dramatically through word of mouth. And lastly, Arvind, the word of mouth that we get back from the consumers who have bought the product, I've really never heard a greater satisfaction in any product that I've ever been a part of in my career. The satisfaction of the people who say - wow! - it's unbelievable for a little over $20 or a little under $20 what we're getting.

  • Lastly on it Arvind, in registered checks there are many, many sales that are multiple sales. The customers coming in - they are buying more than one when they are going in. That is also a very good sign for the future.

  • Arvind Bhatia - Analyst

  • Great. On the licensing front for TV games, I know you already announced a number of licenses this year. Should we expect more for this year, what you announced so far, we should expect games based on those?

  • Jack Friedman - Chairman and CEO

  • You should expect more, but of course, until a deal is totally signed we can't announce.

  • Arvind Bhatia - Analyst

  • Got one question on Play Along. Play Along has a number of really nice licenses and I wonder if there are opportunities to extend their license to other categories that they might not be already in?

  • Jack Friedman - Chairman and CEO

  • We've already gone through that exercise. Care Bears are, as example, we are expanding into our craft and activity categories.

  • Arvind Bhatia - Analyst

  • Right. And, final question, Jack, on the retail environment for toys right now. I think in the past you've been able to help us with kind of your assessment of the industry, trends that you might be seeing. What's your analysis or how you see the year shaping up for the industry?

  • Jack Friedman - Chairman and CEO

  • Well, I've often thought barring a disastrous economy the expansion of the toy industry as an industry sales comes from how many exciting products are out there on top of the everyday monopolies that will sell their share every year. This is a year -so far I would say as an industry is running reasonably flat.

  • Arvind Bhatia - Analyst

  • Great. Thanks guys.

  • Jack Friedman - Chairman and CEO

  • Thank you, Arvind.

  • Operator

  • Your next question comes from Garret Winger with Jefferies and Company.

  • Derek Winger - Analyst

  • Yes, I was just wondering if you could tell me the capital expenditures for the quarter and the outlook for the entire year?

  • Joel Bennett - Executive VP and CFO

  • $1.2m for the quarter and combined with Play Along we expect that to be in the 8m to $10m range.

  • Derek Winger - Analyst

  • For the year?

  • Jack Friedman - Chairman and CEO

  • Yes.

  • Derek Winger - Analyst

  • Thank you.

  • Operator

  • Again, I would like to remind everyone. In order to ask a question, please press star (*) then the number one (1) on your telephone keypad. Your next question comes from Bill Dezellem with Davidson Investment Advisors.

  • Bill Dezellem - Analyst

  • Good afternoon and thank you. We actually have a couple of different questions and since we've talked so much about TV games, let's shift if we could to My Overstuffed Life and would you give us an update in terms of how that introduction is going, and then the Dragon Ball was specifically called out this quarter. What is driving the placement as just a category or a product where we have very little familiarity with?

  • Jack Friedman - Chairman and CEO

  • Dragon Ball Z has become kind of an Evergreen product line. There is kind of a - I would call it kind of a cult following and a large collector base on it. I'd like to think our execution of the product line in difference to the former company that did the line - I think we've executed it far superior and the consumer is accepting it that way, and it's doing quite nicely for us. In terms of My Overstuffed Life, we've been able to get very nice shelf space on it and the initial reaction at retail so far is okay. We've recently introduced on it Charm pens and those are doing better than okay. I'd call it very nicely.

  • Bill Dezellem - Analyst

  • And, are you anticipating any changes to the Overstuffed Life that will, in your hope, ramp that to where it does better than okay? Or is this a craft type of product that--?

  • Jack Friedman - Chairman and CEO

  • Well, we don't think it's ever going to be a breakout category, but we are putting additional efforts into it and continue to build it into a strong line of product. I would say that we hope that it's a long single or double, if you will. That's what we think the potential of it is.

  • Bill Dezellem - Analyst

  • That it helpful. And then if - a couple more please. What is driving the Extreme Sports here in the recent quarter or two? And then relative to the introduction of the Cabbage Patch Kids, would you please go into some more detail in terms of what your expectations are, because if memory serves us correctly this is maybe one of the first products where we saw moms and kids fighting in stores to get the last two or three dolls that were there before Christmas and created quite a scene. So, what are your thoughts there?

  • Jack Friedman - Chairman and CEO

  • In the first part, the Extreme Sports is a matter having the right licenses and distribution, and the category overall has quieted down and many of our competitors in the category have disappeared and it has pretty well been left as an open playing field to us.

  • Your question on Cabbage Patch is - we'd love to see the same fervor as the first time it was released. We are not anticipating that. We're probably looking at year one in the 1 million piece plus range to get out there, and hopefully sell through very quickly and be the beginning of building the brand for years to come. But, it could be more. You’re asking me what we are anticipating on it. We really don't know the up side until it gets out there. The first units should hit shelf in early August and on our next conference call, we will bring all of you up to date on it. If it's a total blow-out before then, you people I'm sure will all know almost as quickly as we will. Word of mouth seems to travel very quickly in all circles. We're looking forward to it with great excitement, but one never knows until it's out there and the consumer has the same opinion. I can tell you that every retailer that's of consequence to us is strongly behind it and anticipates great sales on it.

  • Bill Dezellem - Analyst

  • Thank you. So, circling back to the Extreme Sports that is not really a revving up of the category as much as it is gaining share as a result of competitors going away and so by default since you’re still there you get more of the remaining buy?

  • Jack Friedman - Chairman and CEO

  • Exactly, it’s become Evergreen for us and we have pretty good distribution. As we keep building our business we get stronger and stronger with our retailers and I also like to compliment us - I think we're great shippers and our in-stock rates with our retailers is excellent and that's a greater inducement for products that they can sell. We keep their shelves full, there are no empty spots and we think we're one of their favorite people, in most cases, to do business with.

  • Bill Dezellem - Analyst

  • Thank you.

  • Jack Friedman - Chairman and CEO

  • You are welcome.

  • Operator

  • Your next question comes from Dennis McAlpine with McAlpine Associates, LLC.

  • Dennis McAlpine - Analyst

  • Well, thank you -

  • Jack Friedman - Chairman and CEO

  • Hi, Dennis. How are you?

  • Dennis McAlpine - Analyst

  • Good, and you?

  • Jack Friedman - Chairman and CEO

  • Good.

  • Dennis McAlpine - Analyst

  • You talked about specifically the WWE line coming back. Can you add to that as to whether that's new product or what's going on given that the WWE seems to be relatively flat, at least as far as TV ratings go?

  • Jack Friedman - Chairman and CEO

  • Yes. I would agree with you that TV ratings are running flat-even . There is a lot of new talent. Those new talents the wrestling consumer likes to purchase. We do have some new products and it’s truly gaining a new momentum in our line.

  • Dennis McAlpine - Analyst

  • Do you expect that to continue?

  • Jack Friedman - Chairman and CEO

  • I'm sorry. Do we think it will continue? Absolutely, we're getting more and more shelf space on it.

  • Dennis McAlpine - Analyst

  • And, you had said -- [inaudible] what looked like [inaudible] - are you going to go more deeply into that?

  • Jack Friedman - Chairman and CEO

  • Frankly, I'd say no we're not expanding in it, we're a little bit disappointed with it to date.

  • Dennis McAlpine - Analyst

  • Thank you.

  • Jack Friedman - Chairman and CEO

  • You're welcome.

  • Operator

  • Your next question comes from Sean McGowan with Harris Nesbitt.

  • Joel Bennett - Executive VP and CFO

  • Hi Sean.

  • Sean McGowan - Analyst

  • Hi guys. A couple of questions here as well, it should be pretty quick though. Is it safe to assume that most of the increase in sales in the quarter came from TV games?

  • Joel Bennett - Executive VP and CFO

  • No. We had increases coming from all categories and within traditional was probably showing the biggest growth, but within that WWE was up and international was up overall. But, as a driver, definitely yes, a driver.

  • Jack Friedman - Chairman and CEO

  • As any one product line it would be the biggest increase, but not if you compare it to the others combined. Singly, it was the biggest increase, Sean.

  • Sean McGowan - Analyst

  • Right. On the last conference call, I think the question came up that did you expect that line to be 15% of sales? I mean it sounds like that will be a lay-up, do you think you could exceed 20 - for the year that is?

  • Jack Friedman - Chairman and CEO

  • The answer to that, I think when our TV promotion starts in the Fall and we have full distribution of the new products I think we'd be happy to update everyone on that, Sean.

  • Sean McGowan - Analyst

  • Okay.

  • Jack Friedman - Chairman and CEO

  • It's certainly looking encouraging.

  • Sean McGowan - Analyst

  • Okay. Does TV games have shorter dating terms than typical toys?

  • Jack Friedman - Chairman and CEO

  • No.

  • Sean McGowan - Analyst

  • Then it has a typical toy dating term?

  • Joel Bennett - Executive VP and CFO

  • Yes, typical. Yes.

  • Sean McGowan - Analyst

  • Okay, thanks. A couple of other quickies. Is the point of sale recently on Care Bears still pointing up over last year?

  • Jack Friedman - Chairman and CEO

  • Hear my answer Sean, I said definitely.

  • Sean McGowan - Analyst

  • No, I didn't hear it. Thanks. And last question, Cabbage Patch - I imagine you’re selling a number of different products, could you give us an idea of what the average retail price will be of the products that you’re selling in Cabbage Patch?

  • Jack Friedman - Chairman and CEO

  • I'd say 29.99 plus, Sean. Plus maybe a little bit, but say 29.99.

  • Sean McGowan. Okay. Thank you.

  • Jack Friedman - Chairman and CEO

  • Thank you, Sean. Thank you all very, very much. There are no other questions up there now. We thank you all very much for your time and look forward to continuing to give you guys good news in the future.

  • Operator

  • This concludes today's conference call. You may now disconnect.