JAKKS Pacific Inc (JAKK) 2012 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for joining the JAKKS Pacific First Quarter 2012 Earnings Call with management. Today JAKKS will review the results for the first quarter, ended March 31, 2012, which the Company released earlier this morning. On the call today are Stephen Berman, President and Chief Executive Officer, and Joel Bennett, Executive Vice President and Chief Financial Officer. Mr. Berman will first provide an overview of the quarter and operational results and then Mr. Bennett will provide detailed comments regarding JAKKS' specific financial results. Mr. Berman will then conclude the prepared portion of the call with highlights of products lines and current business trends, prior to opening the call for questions. (Operator Instructions)

Before we begin, the Company would like to point out any comments made about JAKKS Pacific specific financial performance, events or circumstances including the estimates of sales and earnings per share for 2012, as well as any other forward-looking statements concerning 2012 and beyond are subject to the Safe Harbor protection under federal securities laws. These statements reflect the Company's best judgment based on current market trends and conditions today 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 such risks and uncertainties, you should consult JAKKS most recent 10-K and 10-Q filings with the SEC, as well as the Company's other reports subsequently filed with the SEC from time to time. With that, I will turn the call over to Mr. Berman. Please go ahead, sir.

Thank you for joining us today. We are pleased to report that 2012 started off favorably with net sales and earnings exceeding the high end of our guidance ranges for the first quarter. We are also excited to announce that the launch of the Monsuno toy and animated series have exceeded the Company's expectation to date. The toy line is selling out at many of our major retailers and the animated series has solid viewership week over week. Our aggressive expansion plans for international retail distribution for the toy line is on track and we're estimating that roughly 30 countries are slated to offer the Monsuno toy line in their markets by this fall. This is an especially exciting prospect given that the Boys Action product category has historically produced billion dollar properties worldwide. We plan to capitalize on these exciting launch results by continuing to aggressively market Monsuno, while developing additional products to further strengthen our sales.

While the product has only recently been launched, we are confident that should these early trends continue, Monsuno can become a phenomenon in the US and around the world. Beyond Monsuno, we have some really terrific products in our portfolio and we are optimistic for the year ahead with contributions coming from a broad range of toys and toy-related products and electronics for all ages and for the entire family. We expect the top contributors to come from across all the JAKKS divisions this year, including a strong lineup in our Girls division with products based on the powerhouse brands such as the Winx Club, Disney Princess, Disney Fairies, and Cabbage Patch Kids. Our Winx Club dolls and role play toys launching this fall have wide placement and distribution. Our extensive line of Disney dolls, dress-up, role play, and Halloween costumes are based on hot Disney entertainment releasing later this year -- such as the Cinderella Diamond DVD release, Disney Fairies Secret of the Wings DVD release, and Disney Pixar's Brave. In our Boys arena, we are looking forward to seeing significant growth in our Boys Role Play and Novelty business with Marvel novelty, plush, and Boys Role Play and Dress-Up lines based on The Amazing Spider-Man and The Avengers feature film, as well as toys based on The Dark Knight Rises. There is also a lot of excitement around the launch of Scatter Brainz, our new proprietary boys' line of characters-based sticky darts.

We have a robust electronics lineup including SpyNet multivision, action shot video camera, and the Walking Dead deluxe TV game. We are looking to expand beyond the toy aisle in mass retailers and into consumer electronics aisles and sales channels with these new items, target people of all ages and demographic profiles. We are looking forward to launching these product lines this fall. In our Seasonal Outdoor category, we are very excited for the return of the iconic Original Big Wheel ride-on toy from our Kids Only division. Millions of millions of Original Big Wheel toys have been sold over the past 40 years and the king of the sidewalk has been a favorite with families for generations. We are excited to build on this classic brand and introduce this iconic toy to new generations of children. In our Tollytots preschool category, we continue to thrive with the beautiful Disney Princess toddler and baby dolls and baby doll accessories based on premium brands such as Graco and Fisher-Price that resonate with little girls and parents alike.

New and innovative preschool and early learning toys based on top licenses such as Safety1st, Rubik's, and Baby Genius will be making their way into the preschool toy aisles this fall. Our recent acquisition of Moose Mountain toy makers has been fully integrated into our operational system and they are on track to increasing their penetration at retail with their ride-on toys, wagons, play tents, and ball pits. I would like to now turn the call over to Mr. Joel Bennett to review our financial results for the first quarter of 2012, then I will give a further update on the initial success of Monsuno and the 2012 product portfolios, before opening the call to your questions. Joel?

Thank you, Stephen, and good morning, everyone. Our results this quarter exceeded both net sales and earnings guidance with net sales for the first quarter 2012 of $73.4 million, up from $72.3 million reported in the comparable period in 2011. The reported net loss for the first quarter was $16 million, or $0.62 per diluted share, which includes $1.4 million, or $0.03 per diluted share, related to financial and legal advisory fees and expenses. This compares to net loss of $10.6 million, or $0.39 per diluted share, reported in the comparable period in 2011, which includes $300,000, or $0.01 per diluted share, of financial legal advisory fees and expenses. Excluding these advisory fees and expenses in 2011 and 2012, the first quarter net loss in 2012 would have been $15.1 million, or $0.59 per diluted share, compared to a net loss of $10.4 million, or $0.38 per diluted share, in 2011.

Turning to a more detailed discussion of our results, our product lines are aligned in two categories which reflect the makeup of our business -- they are Traditional Toys and Electronics and Role Play Novelty and Seasonal Toys. Worldwide sales of products in our traditional Toys and Electronics segment, which includes Dolls, Action Figures, Vehicles, Electronics, Plush, and Pet products, were $41.3 million for the first quarter of 2012 compared to $38.2 million for the first quarter in 2011. 2012 sales this quarter in the segment were led by our Boys' Action Figures with Monsuno and Pokemon, still offset by a decline in TNA. Girls products, we saw lifts in Disney Fairies dolls and Cabbage Patch Kids and preschool which increased with higher Disney Princess doll sales in our Tollytots division. Worldwide sales from our Role Play, Novelty, and Seasonal Toy segment, which includes role play products, novelty toys, Halloween costumes, indoor and outdoor kids furniture and pool toys were $32.1 million in the first quarter of 2012, compared to $34.2 million for the first quarter 2011.

Sales of our Indoor and Outdoor Kids Furniture were up from the previous year and dominated sales in this category this quarter, followed by role play products, although the segment was down overall versus last year. Included in the category numbers are international sales of $9.5 million for the first quarter 2012 compared to $14.9 million for the first quarter 2011. We are pleased with the progress we've been making in our international expansion, especially for Monsuno as we seek to maximize international opportunities for license and especially JAKKS own content. Gross margin for the first quarter of 2012 and 2011 was 32.1% and 33.6% of net sales, respectively. The decline in 2012 is primarily due to a shift in product mix resulting in higher royalty expense, offset in part by lower product cost and tooling amortization.

SG&A expenses in the first quarter of 2012 were $43 million, or 58.5% of net sales, as compared to $39.1 million, or 54% of net sales, in 2011. The increase as a percentage of net sales for the quarter is primarily attributable to marketing support for the launch of Monsuno, in addition to the incremental overhead added in connection with our acquisition of Moose Mountain and legal and financial advisory expenses incurred in connection with the unsolicited indication of interest. Operations provided cash of $6.1 million for the first quarter of 2012 compared to $7.9 million in 2011. As of March 31, 2012, the Company's working capital was $354.7 million, including cash and equivalents and marketable securities of approximately $254.8 million. Our balance sheet remains very strong.

We continue to evaluate various uses of our funds and untouched financing capacity. Using our disciplined approach, we look for accretive acquisitions to complement the growth of our business and effectively deploy our capital. And in 2011, the Company implemented a cash dividend program that current pays an annual dividend of $0.40 per share, payable quarterly to shareholders of record of the Company's common stock. The dividend policy is intended to allow for internally generated cash flow to support our organic and acquisition growth strategies, maintain a strong balance sheet, as well as provide sustainable quarterly dividends to our shareholders. Depreciation and amortization was approximately $3.2 million in the first quarter of 2012 compared to $3.9 million for first quarter of 2011.

As for our tax rate, our effective rate for 2012 is expected to be approximately 25% before any [1048s] or other adjustments. This may change if there's a shift in sales between the US and Hong Kong companies. Capital expenditures were $3.2 million for the first quarter of 2012, comparable to the $3.2 million for the first quarter of 2011 and in line with our expectations. Accounts receivable as of March 31, 2012, were $58.4 million, up slightly from $57.4 million at the end of the first quarter of 2011, due to higher sales in 2012. DSOs remained unchanged at 72 days from 2011 to 2012.

Inventory as of March 31, 2012 was $45 million, down slightly from the March 31, 2011 level of $45.2 million. Inventory levels remain generally low with DSIs of 101 days compared to 102 days for the same period in 2011. As for our earnings guidance for 2012, we are still anticipating net sales in the range of $720 million to $728 million with diluted earnings per share in the range of $1.01 to $1.07, excluding costs in connection with the unsolicited indication of interest. We continue to have strong confidence in the future prospects for JAKKS Pacific and its shareholders.

Lastly, our Board of Directors has declared a regular quarterly cash dividend of $0.10 per common share. The dividend will be payable on July 2, 2012 to shareholders of record at the close of business on June 15, 2012. With that, I will return the call back to Stephen Berman.

Thank you, Joel. We are very pleased with the results of our first quarter of 2012 and are optimistic about our outlook for coming year with the initial success of Monsuno and the broad placement of our wide-ranging portfolio product. Today is the first day of our Spring 2013 Toy Fair and we're looking forward to the positive response on a number of our product lines for the year. Let me start with Monsuno -- the launch of the Monsuno toys and the US premier of the animated series has exceeded the Company's expectations to date. We are extremely excited to report the robust initial retail sales of the toy line, continued expanding international retail distribution, and solid ratings for the animated series, which has increased viewership week over week. Since their launch, the Monsuno products retail sell-through has increased expeditiously for key items and accessory items; therefore, we have developed plans to meet and increase consumer demands at retail. Monsuno single packs, two-packs, and four-packs are some of the most popular items that are selling out at many retailers.

We have increased material buys and production quantities to accommodate the strong demand. We are also anticipating strong sales due to the upcoming promotions, retail ads, and circulars, in-store events and end caps planned at most of our major retailers. Key promotions include the first-ever Monsuno DC to Wild Core in-store event at all Toys "R" Us in the US, end caps at all Target stores from March to June, Monsuno Monster Power Tour which kicked off on April 7 and is a Top 10 market sampling tour hitting major cities across the US with sampling, gaming, and hands-on demos. A PR Event in Japan on June 25 will distribute 100,000 limited edition cores and additional key promotional activity will kick off in July. Our international distribution continues with some of the largest toy companies in the world launching Monsuno toys this year. Monsuno toys are launching in Canada, UK, Australia and New Zealand in July and August; in Europe, Latin America, Asia, the Middle East, Israel, and Africa, the toys are launching in June through August in these territories. In all, an estimated over 30 countries will market and distribute Monsuno toys this year and the Monsuno toy line was recently awarded the prestigious Boys Toy of the Year award from the Australian Toy Association at the 2012 Australian Toy, Hobby, and Nursery Trade Fair.

The Monsuno animated series premiered on Nicktoons February 23, 2012. New episodes premiering every Thursday, with encore airings throughout the week, bringing the total number to seven airings per week. Monsuno has continued to find an audience that has grown since its debut. The new episode on March 22 was the highest rated new episode to date with kids, tweens, boys, and total viewers, ranking as the number six show on all TV during its time period with boys 6 to 11. Currently, repeat episodes are airing this month with brand-new episodes launching on Nicktoons in May. As mentioned earlier, Monsuno's international programming will include Nickelodeon channels around the world starting in Canada, Australia, and New Zealand in April and May and in Europe, Latin America, Asia, Middle East, Israel, and Africa in May and June. We have also secured excellent A-level free to air television in key international markets including Australia and parts of Europe and the UK.

The Monsuno Battle to the Core online game on Nicktoons.com is still the number one played game on Nicktoons.com with over 805,000 games played since January 2012 and growing. We could not be more pleased with the performance of this franchise to date. We believe Monsuno is on the road to becoming the next big boys action brand worldwide. We're looking forward to seeing significant growth in our CDI Boys Role Play, Dress-Up, and Novelty business with novelty, plush, and boys role play lines based on Marvel's the Amazing Spider-Man and The Avengers feature films. We are looking forward to the introduction of our 31-inch Batman figure based on The Dark Knight Rises theatrical release. There is also building excitement around the launch of Scatter Brainz, our new proprietary boys line of collectables, character-based sticky darts and launching accessories, which has placement in all top accounts.

In our Girls division, our focused portfolio of classic brands includes Disney Fairies, Disney Princess, Cabbage Patch Kids, Hello Kitty, and the highly anticipated new fashion dolls brand, the Winx Club; all are looking optimistic for 2012. We are excited for the launch of the Winx Club dolls, play sets, dress-up and role play products for this fall. Program ratings on Nickelodeon are solid. Since its launch in the summer of 2011, four prime time specials aired each month and by November 2011, Nickelodeon was airing the programs daily. The Winx Club premiers, including the four specials, have an average 1.6 million total viewers to date.

We are pleased with the placement of our Winx Club dolls and dress-up and expect full presence at all major accounts. International distribution includes the UK, Australia, New Zealand, and Latin America, and our strategic product launch in the US includes a June 1 online pre-sale at all accounts with dolls, a July 1 limited on-shelf distribution to support early promotion for dolls, and August 1 nationwide on-shelf launch for the entire product line. In addition, we are working with several strong partners on a fully-integrated marketing campaign focusing on traditional, TV, social media, and TR. With our existing and extensive product line, the power of Nickelodeon, a solid comprehensive marketing program, and full trade support, the industry should brace itself for the next hottest fashion doll brand.

Disney's Fairy dolls are still in the top performing doll brand in JAKKS Pacific's girls division. Top volume drivers are the nine-inch fashion dolls and our feature doll, Sky High Tink. In addition, multi-pack exclusives continue to sell well. Sky High Tink, our first-ever flying fairy, was a stand-out success heading into Easter. The TV campaign began in March and sell-through soared. We are very optimistic about the brand due to the upcoming release of the new DVD, Secret of the Wings. JAKKS is working closely with Disney to create strong promotional support of the new movie and toy line this fall.

Cabbage Patch Kids is a top performer for Q1 with our collectible Cuties as the top volume driver in the brand, followed by our core kids. Cuties are priced just right at $9.99 and proved to be a winner during pre-Easter sales. Part of the Cabbage Patch Kids success has been aggressive retail price promotion. The Cabbage Patch Kids brand continues to thrive in alternative markets as well. We are excited for retail promotions at Costco, QVC, just to name a couple, and at JCPenney is where the Cabbage Patch Kid Cuddlies were selected as one of the few girl properties to be featured in the retail product mix of the new JCPenney stores, and at Albertson's, where Cabbage Patch Kids Cuties were expected to be a part of the holiday seasonal program in all Albertson's stores.

In sum, we had a successful 2011 relaunch of Cabbage Patch Kids brand with the come back of the kids. This spring, we have continued support at all major and most mid-tier accounts and we are extremely looking forward to an equally strong fall performance with the introduction of the new Cabbage Patch Kids Babies. In first quarter 2012, key performers for CBI were Disney Princess dress-up and role play with point of sale up over 20% versus first quarter 2011. Incremental placement and ads at key accounts in first quarter helped fuel point of sale growth with dresses, role play, and makeup categories driving sell-through. In second quarter, we had Easter promotions at key accounts, which should continue POS growth early this quarter. TV advertising for the dress-up segment also begins in the second quarter. This fall we are looking forward to the new toy surrounding the number one favorite Disney Princess, Cinderella Diamond DVD release in October; specifically, the beautiful Cinderella deluxe light-up dress and enchanted vanity.

Disney's Princess continues to be the number one franchise and the number one girls property in North America. Cinderella is the most popular Disney Princess in the US among girls ages three to five. We are also offering the widest selection of Disney Princess dress-ups and role play products than ever before, including our Disney Princess Time to Play and new line of themed dress-up and role play sets that teach little girls how to play like their favorite Disney Princess. We're also very excited for our gorgeous line of Disney Fairies dress-up and role play based on the new Disney Fairies Secret of the Wings DVD release in October; specifically, the core dress assortment and light-up wings, both of which will be TV advertised, along with our light-up dolls, this fall. In our Kids Only division, our outdoor and seasonal initial retail sales of Kids Only new outdoor licensed cafe tables and chair sets, toddler swings, patio chairs, and fun time step stools look to be very strong. Our introduction of the Minnie Mouse branding on many of our new outdoor products is also proving to be a success. Disney will be releasing a I love Minnie DVD/Blu Ray compilation this year and we anticipate this entertainment will help provide a lift in sales.

We are looking forward to the increase in Kids Only sales of licensed kiddie pools and licensed patio sets as the weather gets warmer and as we get closer to the Memorial Day weekend. The big news for Kids Only is the introduction of one of the most iconic toys ever -- the Original 16-inch Big Wheel. The response to date from the trade has been tremendous and retailers of all sizes and distribution channels have embraced the Big Wheels with huge support of the brand. For example, Toys "R" Us will include the Big Wheel in their circular to support the July launch and JCPenney will be including Big Wheels in their June catalog to over 38 million customers along with a partnership with Ellen DeGeneres, who has chosen Big Wheels as one of the items from the Made in America shop and will be featured on her show in November. Plan on picking up your Big Wheel on July 1 at Toys "R" Us, Target, and JCPenney stores nationwide with wide distribution in all other major retailers in August. In preschool, Tollytots continues to thrive with continued robust sales on Disney Princess baby and toddler dolls with year-to-date sales up significantly at our big three major retailers. For second quarter, we are looking forward to achieving full distribution on our line of Merida toddler dolls for the Disney and Pixar movie Brave that will be featured at all major retailers both for the theatrical release in June and for the DVD release in fourth quarter.

Tollytots has also secured the rights from Disney to offer a new scale of six-inch toddler dolls, which is exclusive for Toys "R" Us shipping later this summer. Other key highlights for Tollytots this year include a major distribution victory at Target with a two-foot section of our Graco products in their large doll section. Tollytots has also gained value mass distribution at Ross Stores, which boast 1,100 doors and TJMaxx and Marshall's, which has approximately 1,700 doors for a variety of products. Beyond the strength of our doll offering, we are launching into the preschool aisle with Safety1st cubicles, Baby Genius and Rubik's products, which will be introduced at Toys "R" Us this fall and other mid-tier accounts. We are also well-positioned to create a buzz on these lines with a strong foothold at Toys "R" Us, with a strategy of expanding our distribution in the long term. As mentioned earlier, Moose Mountain is now fully integrated into JAKKS. Moose Mountain has increased penetration at resale this year, including their line of Fisher-Price ride-ons, the amazing Spider-Man movie inflatable ball pit, arcade games, and pinball games.

In the Halloween segment of our business, we are celebrating the 25th anniversary of Disguise this year with a hot lineup of licenses for the 2012 Halloween season. This is one of the biggest years for Halloween in the Boys category in recent history. Disguise has many of the best licenses to appeal to our boy audience, including the Amazing Spider-Man, the Avengers, GI Joe's Cobra Strike, and Power Rangers Samurai, the top-rated program on Nickelodeon. Disguise will offer costumes and accessories for the whole family based on these top entertainment properties. For girls, we are look forward to launching costumes and accessories based on Disney's Brave, Cinderella, and Disney's Fairies Secret of the Wings. We also have a wonderful toddler lineup based on Transformers Rescue Box, the Marvel Super Heroes Squad and Jake and the Neverland Pirates, which is ranked the number one series with boys two to five on cable and there are two TV events scheduled for 2012.

Retailers are reporting continued improvement in their seasonal business with Valentine's Day and Easter showing significant growth over 2011. This bodes well for our Halloween business. Cross-promotions are in the works with the Cinderella Diamond DVD release and the disguise costumes at Toys "R" Us. Spirit Halloween is promoting our Avengers line through a cross-sell with Best Buy. (inaudible) mass is slightly ahead of our last year and we are seeing significant growth in the on-line sector, as well as our wholesale clubs. In Pets, shipments of our KONG premium treats to PetSmart and Petco will hit shelves in May. Our KONG premium treats have been awarded significant space in pet big box stores, which will greatly increase the comp sales at retailers in 2012.

Moving into 2012, our innovative and electronics lines will he be shipping later this year. We continue to take a role play through real play with even more technology with the new spy ultra vision goggles featuring real working night vision, thermal vision, a daytime filter, and also the ability to take pictures and video. SpyNet continues to perform both in North America and internationally. Our Action Shot video camera line is a new video recording system targeting a broad demographic from age five all the way up to teenagers and adults, at an affordable price. This is JAKKS' own content and we are extremely excited about licenses and promotional plans in the works. We are working to get into alternative channels such as sporting goods stores, electronic stores e-commerce, warehouse clubs, QVC, and others.

On our Power Train sets we are shipping later this year, we have great placement at major retailers as well as mid-tier accounts, and we're looking forward to the QVC Christmas in July for Power Train. It's a great [evergrade] play pattern targeting today's four to eight-year-old boy at very affordable prices. Our new baby monitor line is another example of JAKKS' evolution as a consumer products company applying our proven technology to move beyond toys and expanding our consumer targets to parents and grandparents. We are expecting a soft launch for the baby monitor at direct retailers this fall, both in the US and internationally. Overall, we are pleased with the progression into 2012. We managed our inventory levels for 2011 and we feel we are well-positioned for growth with the diverse portfolio of JAKKS core brands, top licenses, and consumer electronics offering. We're proud to have received the 2011 Toys "R" Us Vendor of the Year Award for JAKKS Canada for the second consecutive year as well as for our Disguise Halloween division.

Disguise also received the Walmart Vendor of the Quarter for third quarter 2011. We are currently securing many new licenses, which we will be sharing with you in the coming months, which we believe will be greatly complementary and additions to our portfolio for 2013 and beyond. Our international business continues to thrive and we are working on setting the stage for a robust year for international. We recently appointed Carmine Russo as President of JAKKS International division. Carmine has successfully directed the global expansion of JAKKS Pacific outside of North America, bringing our brands and products to over 60 countries and forged partnerships with some of the biggest international toy companies and licensing companies around the world. We look forward to continuing the international growth under Carmine's leadership; making JAKKS a truly global consumer products company. We are working towards maximizing opportunities for Monsuno, Winx Club, Big Wheels, and many other key drivers and are working to meet expectations for margins, maintaining tight reins on our operational execution, and striving to improve our balance sheet for a profitable and successful JAKKS Pacific for our stockholders and employees. With that, I will now open up the line for any questions you may have. Thank you.

(Operator Instructions) Scott Hamann, Keybanc Capital Markets.

Just a question on 2012 guidance -- it sounds like things are going real well at Monsuno ahead of your expectations. What are some of the potential takes that you see in other parts of the portfolio, maybe, that make you a little bit less confident in raising guidance? And I realize it's still early in the year, too.

First and foremost, it's still early in the year. It's the first quarter of the start of 2012 and that being said, we're obviously just being cautiously optimistic. But if you take a broad range of the different segments of our business from international growth to our toddler division or Kids Only we are very optimistic and majority of all of our segments of our business. Right now, we're just taking a wait and see to get through the first half of the year. We've geared up for success, but again, it is too early in the year to make any adjustments, whether it's positive or negative. But we are only seeing truly positive, optimistic receptiveness, both in North America and abroad, across various segments of our line.

Monsuno is very exciting. The Winx Club is very exciting. The Big Wheels are very exciting. But in addition, our Fairy doll line that has the new DVD, Secret of the Wings, and our new Disney Cinderella line, which has a really deep breadth of product, our Moose Mountain line, Halloween, we're truly excited. But it is well too early in the year to adjust guidance either way.

Okay. Fair enough. Just looking at Monsuno, I know you guys are kind of hesitant to size up what you think the opportunity is. But in terms of the product that you have out there now and what you expected previously for the year, now with the data points you've seen, how much flexibility do you have to pump out 50% more than you thought, 100% more? What's the optionality that you have as you look out to the balance of the year?

I'll give you what's occurred during the first quarter of the launch. We had very nice expectations internally and our retailers did and the product sold through beyond our expectations. That being said, we actually have more than duplicated additional tools and different various categories within the Monsuno line. We've added an additional manufacturer to another segment of our line. What the indications are internationally, we're prepared for both North America and international increases.

We have geared up tooling and production and materials based on what we're seeing, currently. That being said, if it turns out to be this grand slam, we'll always to have chase. We will not bet the ranch on any one single category. But with what's occurred in US so far and the commitments we have internationally, we have geared up beyond what we previously expected that we needed to achieve what our partners' goals are.

Okay. That's helpful. Finally, on the licensed partners with Monsuno, is there any update on any new out-licensing agreements with the popularity being good here? When do we expect to see some of that stuff start hitting the P&L?

The licensing partnerships are underway. There's clothing partnerships that are getting completed, back to school partnerships, a lot's happening both in North America and licensing agreements internationally. But I'd say probably affect us more in fourth quarter and then going into 2013.

All right. Thanks a lot, guys.

Ed Woo, Ascendiant Capital.

How is the retail environment right now both in the US and international?

I can speak for JAKKS and what we're seeing across the board. I think I mentioned it early in our call, just on our CDI dress-up sell-through we've seen an increase. We've seen an increase in various segments of our business. From what occurred at the November-December period time for a lot of ourselves, our competitors, like Hasbro, Summer Infant, who were affected by a real slowdown during November-December period. Then we saw recently what occurred with Mattel's announcement on Monday, we're, for us, extremely comfortable, and I think it has to do with the diversity of the segmentation of our businesses and the price points that we have during the spring period. A lot of our price points are under that $20 threshold. For us, we've got the key license brands, we've got the correct product, we have the correct categories and segmentations of our business, so the sell-through on our product, we are extremely pleased about.

Have you noticed any change with retailers either being tighter with inventory?

Only for us, no, we have not seen it for JAKKS. I did see it on a recent release from another Company earlier this week, but for us, no. We're really not getting affected by that and I think it's because we ended the year extremely clean.

Another question I have is, there's a lot of products that is coming out this year, a lot of exciting stuff. Do you think that it will hit more in the second and third quarter or the fourth quarter?

I'd say the majority of it will be in third and fourth quarter for our company. But that being said, we are seeing increases in certain areas of our business that are coming in earlier in second. But the majority of the business is the third and fourth quarter for us.

Okay. Thank you and good luck.

Drew Crum, Stifel Nicolaus.

Stephen, I wonder if you could talk about how retailers intend to manage inventory with the diversity of Winx Club, Disney Fairies, where you've got a new initiative along with Disney Princess?

It's a very good question. The reason we picked up the Winx Club, and we have an amazing partnership with Disney and we would never affect anything that we do, is we're able to differentiate both the Winx Club and the Fairies line. Fairies is for a much younger girl and Fairies has been a brand in the US for decades. Our line of Fairies are really, really apropos for, call it, the four to six age, four to six and a half. The Winx Club is much more attitude and much more fashion-oriented and is really focused more, call it, from the six to nine-year age girl, and they're both set up at two different segmentations at retailers.

Our placement for Fairies is beyond strong. Last year, we didn't have content for our Disney Fairies, which did affect us in the fall period. This year, we have one of the most amazing DVD releases from Disney that, for the first time ever, Tinkerbell is meeting her sister. It's called Secret of the Wings DVD, which comes out in fall. That's going to give us a great boost and retail placement has been extremely strong, stronger than it was in '11. For the Winx Club, our placement is euphoric as the success in Europe has been extremely strong over the last seven years for the Winx Club. Having Nickelodeon behind it and the ratings that have occurred for the Winx Club to date and the new episodes that are launching in fall, retailers are extremely excited on it because it's going into a different category than what we're into with both fairies and with princess. It's going to that older age grade and the Nickelodeon support with great product and the past success that's happened, we're hitting it on all corners by having both lines together; together as JAKKS, but separate at retail.

That's helpful, Stephen. Just to follow up on that, should we expect any shipments in the international markets during the second quarter or is that more third quarter?

Of Winx Club?

Of Winx Club, yes.

It'll be more third quarter for Winx Club.

Got it, okay. As far as Monsuno is concerned, if you guys are willing to disclose what that contributed in the quarter, if you don't, that's fine. But as it relates to the gross margin, it looked like the key driver for the year-on-year compression was the higher royalty expense. If I go back several years, it was one of the higher first quarters percentage of revenue. Can you talk about why the royalty expense was much higher when one of your owned properties, owned brands, seems to have done very well during the period?

I'll have Joel answer the royalty, but we don't break out specific segments of our business. As Monsuno has just started in first quarter, it was really a start for us. It wasn't a dramatic, dramatic part of our business, so that definitely didn't affect us on the royalty basis. It is on a very strong upswing, but it was not material in this quarter. But the royalty question, I will have Joel answer.

Yes. As far as the Monsuno being owned content, we are still a licensee of the joint venture, so we'll pay royalties, which will come through the gross margin line. But we get a portion of that back through different mechanisms within the joint venture. Having said that, we're expecting for the year that including Monsuno, more from a product contribution standpoint, we're expecting that owned content will contribute about 22% versus 15%, 16% of total revenue last year and that was consistent with years prior.

Okay. Last question for me, what are the expectations for the financial and legal advisory fees going forward? I think you incurred about $1.4 million during the quarter. What should we assume in the out quarters?

It's a very good question, but depending on the activity by quarter, it's very hard for us to gauge. There's been quiet times and more busy times. We're trying to keep it down as much as possible, but it really will vacillate. But our goal is to always keep those fees to a minimum if we can.

Thanks, guys.

Gerrick Johnson, BMO Capital Markets.

Did you see any sort of impact to shipments, retail sales owing to the weather trends around the country? You do have quite a few outdoor items in your line.

No, we actually are excited for this summer. The orders on, I'm using just one of our segments, on our noodles, our fun noodles, have been very strong compared to last year as well. We don't see anything that's affecting. It could be, as the weather has been very warm on the East Coast, it could have a nominal impact on a positive basis, but really for the spring/summer, those shipments are primarily done. Now, we'll just have reorders and so on. It's been a good spring/summer. Not just for us, but for many companies that are involved that in segment of business.

Okay. You mentioned Pokemon positively. Is that line back in growth trajectory? I think you had a little trouble there before.

I don't think I mentioned Pokemon positively. It's doing okay for us. It's not doing what our expectations were last year. It was one of our major impacts during November/December, the fall-off of Pokemon. But it's doing to our expectations in our company.

Basically it was a contributor, but it was before Q1 2011 was before the big launch, so it was an easy comp. The reference was more to the contribution during the quarter, not the trajectory.

Okay. Lastly, the contribution to the P&L from the Monsuno joint venture, was that all of $54,000, I think that is? Do you have any guidance for us as to how we should be modeling that JV going forward?

It's all built into the overall guidance. It's a fairly complex arrangement with producer fees and different things based on the timing of cash flow and revenue. But it's not expected to be a significant contribution.

Okay. Thank you.

Arvind Bhatia, Sterne Agee.

Your comments on Monsuno and other products this year, just wanted to tie that back to the gross margin question that was raised earlier. Joel, given all of what you said, what gross margin trend should we be expecting for the rest of the year? Similarly, on the SG&A as a percentage of sales, can you give us some color directionally where you see that line item trending?

Basically, we're expecting, with the growth back on track, we're expecting to lever our infrastructure. As far as gross margin, we're looking at, for 2012, just under 33%. We're well on track with a lot of the new items coming on stream in volume primarily in the third quarter that we're still well on track to achieve that. In terms of SG&A, it's running a little bit higher. I'll break it down into two pieces, one being overhead-type expenses, where we have leverage. The other is the marketing contribution supporting the Monsuno release is a huge corporate-wide initiative for us.

As you've seen in the release this morning, that our SG&A, a lot of that increase as a percentage of net sales, is by the promotion and support of Monsuno. But it's within what I'll call normal parameters. We're not looking to drive huge volume with the advertising. We think the show is doing well and all the promotion, all the PR activities associated with that, we're gaining a lot of traction. Within normal parameters, but nonetheless, the timing of it, we were advertising in advance of the launch, which brought the SG&A higher for the quarter.

For the full year, Joel, should we be expecting SG&A, then, to be flattish or you think it still might be up for the year as a percentage?

Let's see. Actually, if you have one other question, I am going to confirm that right now.

Yes, the other question I had was on the capital allocation. You've got your dividend. Obviously, that's nice. You've done buybacks in the past. You've got good working capital, good cash on the balance sheet. Do you guys have any thoughts on the future allocation of capital? Are you going to get more aggressive on buybacks or will you continue to look towards maybe increasing the dividend? Any commentary on that?

Arvind, we have been meeting often with our Board and our Board is reviewing many different alternatives with the capital base. One of our first and foremost strategic parts of our business has always been acquiring licenses, expanding international, and acquiring accretive acquisitions. That being said, that's still our strategic segment of business. But we always will look at alternatives, whether it's dividend, whether it's a buyback, and we look at various different ways of deploying capital that's correct for our stockholders, as well as to continue our company's growth. We're continuing to look at that. It's something that's always part of our Board meetings.

Got it.

Sean McGowan, Needham & Company.

I have a few questions for Joel, but I wanted to start with one for you, Stephen. You were talking pretty quickly in going over everything, so I missed the detail on Polly Pocket. What's the connection with Polly Pocket?

Nothing was mentioned on Polly Pocket.

I thought I heard you say Polly Pocket, maybe you said Tollytots.

I'll look through what I was reading, some of my notes, but nothing was Polly Pocket. Fairies, Winx, maybe Tollytots or Puppy in my Pocket, but that wasn't really mentioned during the call.

Okay. I guess it was blurred. Thanks.

Sorry about that.

No, it's probably in my head. Joel, a couple of questions, I realize that allowances at the end of 2011 were higher than at the beginning of the year. Is that why allowances at the end of Q1 are so much higher than they were, not only versus last year but pretty much every other first quarter?

Yes, in terms of the liability on the balance sheet, basically what determines that is the timing that the different customers take the deductions. But for the first quarter, the allowance that hit the P&L were actually lower.

Okay.

Yes. That just is based on the timing and the customers tend to take it when it's advantageous to them.

Is it right or wrong to assume that that's maybe some earnings pressure that could come through at some point? Because it's materially higher than usual at the end of the first quarter.

No. Again, the balance sheet, that's just the conduit for the customers taking the deductions. The pressure you would see is in the top line margin. The margin impact was taken in the fourth quarter.

That's what makes it go up, but as it comes down, it has no profit impact?

No, that's just cash flow. It's based on orders from the customer.

Got it.

Usually what they're predicated on is their deductions from future orders, so if one cleans up the current inventory at retail, then it stimulates future orders.

Right. That's the plan. What happens to depreciation and amortization from current levels? Particularly, what was it on the income statement? One of them was way down. D&A is way down on the income statement. What do you think are trends are for the balance of the year?

There are two parts. One hits in cost of goods and that is likely to be consistent with last year. We're keeping our capital expenditures in the $11 million to $13 million range, so that should keep depreciation, amortization, and cost of goods fairly consistent. The dynamic is, when we make acquisitions, we ascribe values to licenses, customer lists, and things like that, that have the a fairly rapid burn-off rate. That will continue to drop over time as the acquisitions that we did in 2008, as we get farther away from that closing date, we'll see that continually drop.

The one that's below the gross profit line, we should expect that this current rate might continue or actually go down?

That one will continue to go down.

Okay. Until you do another acquisition. Okay. Stock-based comp in the quarter? Is that indicative of what your expectation would be for the balance of the year each quarter?

Generally, that's pretty fixed. For the quarter, it was about $340,000, down from $850,000 Q1 last year.

Okay. Jumping back to the Monsuno question on gross margin, taking into account that you do license it from the JV, is the net effect on your P&L higher than corporate average, in line, or lower than corporate average?

It would be higher.

But it just didn't have much impact this quarter because of volume?

Correct.

Okay, that's it. Thank you.

Thank you, Sean. Everybody, thank you very much for the conference call. We look forward to our next call during second quarter of 2012. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.