JAKKS Pacific Inc (JAKK) 2015 Q2 法說會逐字稿

Good morning ladies and gentlemen. Thank you for joining the JAKKS Pacific second-quarter 2015 earnings call with management. Today, JAKKS will review the results for the second quarter ended June 30, 2015, which the Company released earlier today. Please note that presentation slides containing information covered in today's earnings release and call are available on the Investors section of our website.

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 then Mr. Bennett will provide detailed comments regarding JAKKS Pacific's financial and operational results. Mr. Berman will then conclude the prepared portion of the call with highlights of product lines and current business trends prior to opening up the call for your questions. Your line will be placed on mute for the first portion of the call. (Operator Instructions).

Before we begin, the Company would like to point out that any comments made about JAKKS Pacific's future performance, events, or circumstances, including the estimates of sales and earnings per share for 2015, as well as any other forward-looking statements concerning 2015 and beyond, are subject to Safe Harbor protection under federal securities laws. These statements reflect the Company's best judgment based on current market trends and conditions to date 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.

Good morning, everyone, and thank you for joining us today. We could not be more pleased with our strong second-quarter 2015 financial performance. We grew sales, improved EBITDA, as well as improved margins. We are on track for the year as well as looking forward and ahead to 2016. We remain focused on the core aspects of our business strategies -- concentrating on margins, leveraging our P&L, pursuing operational efficiencies, strategically growing international and emerging markets, while continuing to create consumer demand across our broad range of categories while always monitoring sell-throughs.

Benefiting the industry this year is the sales of licensed toys, which has accelerated around the globe, and we have a strong license portfolio. We believe that, to have the best partners in the business, we have to be good partners first. And as such, we have been successful in renewing important licenses in North America and on a global basis for existing properties and new ones with our key licensors, continuing to strengthen our relationships with existing entertainment companies while also securing new licenses.

Our international business had a record quarter with sales led by our Frozen, Disney Princess, Sofia the First, and Star Wars items. In addition, internationally, we are tracking to our best year-to-date, putting in place new initiatives in Europe, Latin America and emerging markets, and a wonderful collaboration with Toys "R" Us Europe to create a new pricing structure and centralized shipping. This collaboration will result in savings for both companies by consolidating shipments in China and shipments to central warehouse locations.

We remain encouraged by the results of our Disney product lines in international as well as in North America. Frozen's strength continues to be strong with POS nearly double that of the first six months of 2014. Frozen remains a strong profit at retail around the world and we love that every year there is a new audience of children three years and up to discover the magic of the movie and the franchise.

Domestically, miWorld continues to perform well at the top three retailers. The Max Tow Mini vehicles and playsets had a strong start out of the gate and are continuing to do well at retail, and our Nintendo 2.5-inch figures made their way to a top five check lane item at Walmart.

With the summer kicking in, our seasonal product lines such as Sky Riders, Sky Balls, Sky Bouncers and Wave Hoops are doing very well this quarter. With the effective retail promotions at Target to support gliders and the Mega Monster Noodle water floats, outdoor continues to be a strong category. Evergreen items such as ball pits, wagons and kids in and outdoor furniture continued to perform well in the second quarter with licenses such as Paw Patrol, Minions, Minnie Mouse, Frozen and Thomas the Train driving the performance.

Overall, we are enjoying the good momentum, posting double-digit growth in the first half of 2015. We are encouraged by our product lines continuing to resonate with our target audience and performing well at retail. We are confident that we are well positioned for the second half of the year and are gearing up to launch our most innovative items this fall.

Now I would like to turn the call over to Mr. Joel Bennett to review our financial results for the second quarter of 2015, and then I'll give further updates of our business for the remainder of this year and an early look at 2016. Joel?

Thank you Stephen, and good morning everyone. We are very pleased to report that net sales for the second quarter of 2015 increased 5.6% to $131.1 million, up from net sales of $124.2 million reported in 2014. The reported net loss for the second quarter was $5.7 million, or $0.30 per diluted share. This compares to the 2014 reported net loss of $9.1 million or $0.43 per diluted share. Adjusted EBITDA for the quarter improved to $1.5 million, up from $1.2 million in 2014.

Net sales for the six months ending June 30, 2015 increased 18% to $245.3 million compared to $206.7 million in 2014. The reported net loss for the six-month period was $13.3 million or $0.69 per diluted share. This compares to a net loss for the first six months of 2014 of $25.4 million or $1.17 per diluted share. Adjusted EBITDA for the first six months of 2015 was $600,000 compared to negative EBITDA of $10.4 million in 2014.

Worldwide sales of products in our traditional toys and electronics segment, which includes dolls, action figures, vehicles, electronics, plush and pet products, were $63.4 million for the second quarter of 2015 compared to $49.5 million for the second quarter of 2014. And sales in this category were $128.4 million for the first six months of 2015 versus $85.2 million for the first six months of 2014. Sales this quarter in the segment were led by our Frozen and Disney Princess dolls, Funnoodle water toys and licensed foot-to-floor ride-ons and wagons.

Worldwide sales from our role-play, novelty, and seasonal toys segment, which includes role-play products, novelty toys, Halloween costumes, indoor and outdoor kids furniture and outdoor activity and pull toys, were $67.7 million in the second quarter of 2015 compared to $74.7 million in 2014. And sales for this category were $116.9 million for the first six months of 2015 versus $121.5 million for the first six months of 2014. Disney Princess dress-up and role-playing, including Frozen and Sofia the First, Maui toys, outdoor seasonal products and disguise Halloween costumes, dominated sales in this category this quarter, driving the category to an overall increase.

Included in the category numbers are international sales of approximately $28.7 million for the second quarter of 2015 compared to $17.5 million in 2014. International sales for the first six months of 2015 and 2014 were $71.1 million and $39.8 million respectively. Disney Princess dolls, including Frozen, Slugterra, and Nintendo products, drove second-quarter sales in the international markets.

Gross margin for the second quarter of 2015 and 2014 were 30% and 30.5% of net sales respectively. Adjusted for closeout sales in 2015, the gross margin was 30.7%, within 30 basis points of our anticipated full-year gross margin target. And gross margin for the first half of 2015 was 30.4% of net sales compared to 29.7% of net sales in the first half of last year. The increase as a percentage of net sales in 2015 is primarily due to higher competitively priced disguise sales in 2014.

SG&A expenses in the second quarter of 2015 were $42.3 million or 32.3% of net sales as compared to $42.6 million or 34.3% of net sales in 2014. SG&A for the first half of 2015 was $81.9 million or 33.4% of net sales compared to $81.1 million or 39.2% of net sales. SG&A in dollars are comparable with cost controls in place following the 2013 restructure and decrease as a percentage of net sales due to higher sales in the 2015 periods. Consistent with the seasonality of our business, operations provided cash of $11.3 million for the second quarter of 2015 compared to using cash of $21.6 million in 2014. As of June 30, 2015, the Company's working capital was $232 million, including cash and equivalents and marketable securities of approximately $110.5 million.

Depreciation and amortization was approximately $4.1 million in the second quarter of 2015 compared to $4.5 million in 2014. Included in other income is $1.7 million recovered from the THQ bankruptcy related to amounts owed from our video game joint venture.

As for our tax rate, the effective tax rate for 2015 is expected to be approximately 15% with quarterly variations based on the flow of taxable income by territory. The overall rate could change if there is a shift in sales and therefore taxable income between the US and Hong Kong entities.

Capital expenditures were $4.8 million for the second quarter of 2015, net of tenant improvement reimbursements of $3.3 million compared to $5.7 million for the second quarter of 2014. For the full year, we expect capital expenditures to be in the range of $13 million to $14 million.

Accounts receivable as of June 30, 2015 were $117.1 million, up from the $109.3 million at the end of the second quarter of 2014 due to higher sales in 2015, resulting in DSOs in 2015 of 80 days, comparable to the 79 days in 2014. Inventory as of June 30, 2015 was $91.9 million, up from $65.1 million in Q2 2014, due to the higher average sales price of new items launching in the second half, resulting in 30% higher inventory item costs, or approximately $19 million. Also, higher sales and continuing high demand for our products resulting in higher DSIs of 113 days in 2015, up from 85 days in 2014 as we head into our peak selling season. Overall unit quantities are down as expected from Q1 2015.

In June 2015, the Board of Directors authorized the Company to repurchase up to $30 million worth of its shares as well as convertible notes in the open market or through privately negotiated transactions from time to time through March 31, 2016. During the quarter, no shares were repurchased. Since the end of the second quarter, approximately 377,000 shares of common stock were repurchased at an aggregate cost of $3.4 million.

Finally, as for guidance, we are reiterating our previous forecast of net sales for the full year 2015 to be in the range of $730 million to $740 million with earnings in the range of $0.71 to $0.75 per diluted share and adjusted EBITDA in the range of $56 million to $58 million.

And with that, I will return the call back to Stephen.

Thank you Joel. Looking ahead, we continue to take a prudent yet positive approach to the remainder of 2015, closely monitoring the market conditions and retail environment. We are, however, excited about our current portfolio of brands, licenses and categories for the second half of 2015 and how our spring and fall 2016 product line previews have been received by retail partners throughout the world.

Last year, we were challenged in keeping up with high consumer demand for Frozen. The year-over-year comps for the quarter were solid and per-NPD, it continues to be the top US and global toy license for 2015 in terms of dollar volume for the 12 months ended April of 2015.

As Frozen has become an extremely strong Evergreen property, we have continued robust product development and are making a meaningful marketing investment for our fall key drivers. Although our expectation for Frozen this fall is not at the same level of fall 2014, we have a media plan against two of our strong items, Sing-A-Long Elsa and Do You Want to Build a Snowman jewelry box. Sing-A-Long Elsa is the follow-up to last year's huge success, Snow Glow Elsa. This year, the feature Elsa doll comes with a microphone and interacts by singing with the girls or letting the girls have the stage and singing to her. The microphone has a unique trigger technology that recognizes when the girl is singing solo and when the girl and the doll sing together. The jewelry box is a great keepsake toy complete with a glittery heart ring for the girl, and features both Anna and Elsa moving to build Olaf while the song Do You Want to Build a Snowman plays.

We are extremely excited with our new launch of figural makeup and glamour segment called Little Kingdom, featuring Disney Princesses. The line will feature mom-approved makeup such as lipgloss, nail polish, hair mascara and more.

We also have a new featured doll line, Colors of the Sea Ariel, which will be a TV promoted item. When placed in the water, Ariel's magical tail creates a light show in the water and sings Part of Your World. The doll also has 14 sounds and phrases in both English and Spanish.

Finally, our Cinderella live-action movie products, along with a new Cinderella live-action toddler doll should receive more awareness when Disney releases the DVD this fall. We will also be launching a line of collectible characters across Disney brands exclusively at Target late in the fall called Tsum Tsum, which means, in Japanese, stack stack. We are following the character launch strategy of the plush that has been hugely successful in Japan and in the US since they launched first at Disney stores in late 2014 and at Target early 2015. We expect to be in full mass distribution by spring 2016, and we will have more to report in the quarters to come.

Skechers and JAKKS recently announced a partnership to launch a line of dolls based on their popular Twinkle Toes character and her friends. Additionally, we have also partnered to create original animated digital media content. Last week, the first of 11 webisodes slated to be released bimonthly on TwinkleToesUSA.com premiered. Other girl product lines coming later this year include Jumpin' Little Monkey, a TV advertised plush toy, in our JAKKS Animal Babies line. In the second quarter, our digital division released a new app called Animal Babies Nursery, a natural extension to the Animal Babies brand, and which also extended the play for Jumpin' Little Monkey. In addition to simple gameplay for children five years and younger, they will also be able to bring Animal Babies to life virtually using the app's augmented reality feature.

The bulk of our big news on the boys side is coming in the second half of the year. Big Figs have a big product launch tied to major motion pictures, including the successful Minions movie, Halo's Master Chief, and of course the much awaited new Star Wars movie. We are ready for the force to be with us on September 4 when we launch our Big Figs products, but with the movie's December release date, we are anticipating an even bigger 2016.

Extreme Performance Vehicles, or XPV, is our return to the radio controlled category. We are launching with Hulk Smash, a feature figure power radio controlled vehicle and figure hybrid that spins 360 degrees, flips over and self-rights. The reception to this Hulk Smash RC has been fantastic.

This year marks Nintendo's 30th anniversary. They're doing more to take advantage of their IP outside of video games and as previously reported, Nintendo named JAKKS Master Worldwide Toy Licensee for toys and costumes, excluding Japan. And the Mario action figures are already resonating with kids. In the fall, we will launch a TV-promoted radio controlled vehicle called World of Nintendo Gravity RC Racer that has the ability to rotate its wheels and drive in simulated antigravity mode to appear to be hovering as he does in the Mario Kart 8 game.

We let you know last quarter about our proprietary dual gender lines of toys. 3DiT! Character Creator, which gives boys a new way to create and customize their favorite characters, and girls the ability to create pets. On shelves soon, we are now shipping the boys line which will feature some of the hottest licenses such as Marvel, Teenage Mutant Ninja Turtles, and DC Superheroes. We are launching it with an app to extend the play online so that the kids can also create virtual characters while they wait for the off-line character molds to be finished and set. The girls line will launch as an exclusive to Toys "R" Us in spring 2016 before going to mass.

In our preschool business, we have a new breed of radio control with Street Dogs, a pup full of personality and RC performance, shipping now and expected to be in stores soon.

Also exciting to us is PBS just announced that they are renewing Daniel the Tiger's Neighborhood for another two years and our line of Daniel the Tiger toys will be shipping into Walmart this fall.

Our disguise division is gearing up for Halloween and beginning to ship new product featuring key licenses such as Disney Princess, Cinderella Movie, Frozen, My Little Pony, Super Mario Brothers, Power Rangers, Microsoft's Halo, Disney Descendants, as well as many others. More to come on that business next quarter.

We have recently completed a restructure of our pet division which has resulted in some very strong development of house brands such as Tennis Dog, Burbark and Stickz. We also signed a licensing agreement with Rachael Ray for pet toys, treats and accessories, and we are very excited to be launching that product shortly.

Lastly, this year celebrates JAKKS' twenty-year anniversary and I couldn't be more proud of where we are today. We are continuing to invest in the future of the Company and moved into a new corporate office at the beginning of July in Santa Monica, consolidating many of our various offices throughout the US. Our new headquarters, along with our new onsite permanent showroom, will allow for a better collaboration and efficiencies that we believe will generate new opportunities for JAKKS.

With that, we will end the prepared portion of the call. Thank you for your time this morning and we will now open it up to Q&A. Thank you.

(Operator Instructions). Stephanie Wissink, Piper Jaffray.

Thank you. Good morning everyone. Gentlemen, two questions. The first is with respect to the product initiatives that you have in the back half. Can you talk a little bit about the conservatism in your guidance and where you think there may be some upside potential?

And then Joel, just a question of clarification on the inventory. I think you walked through there was a unit versus pricing delta but could you just walk through that one more time so that we are all on the same page with respect to the balance or the qualitative side of the inventory balance at the end of the quarter? Thank you.

I'll answer the first question, and I'll let Joel answer the second question. For the remainder part of the year, we are actually extremely excited. We are booked ahead of where we were last year for the full year internationally, and we are up about I think 10% booked to what we shipped. So we are excited about that. We have a very large lineup of I would say great products. Besides our basic everyday products of Moose Mountain and Kids Only and Maui and so on, we have our Hulk Smash, which has been extremely well received, our 3DiT! line, our Nintendo line, a broad line of Star Wars, Big Figs. In our girl line, we have Animal Babies. Our private label business which we don't really talk much about has increased and has done extremely well at some of our major customers. MiWorld. So we have a lot of great second-half products, one of which was brand-new that came up, which is Tsum Tsum, which means stack stack in Japan, and is probably one of the hottest categories in Japan and has sold extremely well, one of the top sellers at the Disney stores and at Target through Disney this year. We have Minions, Paw Patrol, Frozen and our seasonal area. So in many of our segments, we've got some great products.

We do have a conservatism of just to wait and see for the fall with the retail environment. There is inventory out there not from JAKKS, but from some other competitors. That does slow down open to buys. But all in all, we are extremely comfortable going into fall, and then really extremely or excited into 2016.

But we do take a cautious approach. We are up 18% for the first half, which is exciting and strong. We've been managing our business tightly. We have just brought in inventory in the UK and China and the US to help the growth for the second half. But I tend and the Company tends to try to take a conservative approach to the unknowns. But we are really confident with the year as we see it today.

As far as the inventory levels, dollar-wise, we are up year-to-date and also year-over-year. But included in those numbers is an increase in the unit cost reflective of some of the initiatives that Stephen had mentioned, some higher price points which will help drive the volume in the back half. Those include 3DiT! and Hulk Smash, just to name two. If you were to normalize the unit cost and also factoring in about $10 million in the UK and $1 million in inventory related to our new China joint venture, we are actually within 5% or 10% of last year's balance.

In general, we are very comfortable with the level of inventory that we are at. It's all fresh current product, and we expect that to ship in the back half. Our back half, just based on the seasonality, is expected to be in the neighborhood of $500 million and the inventory levels would equate to approximately $180 million in sales. So, given all of that, we are very comfortable with the levels.

Thanks guys. Good perspective. I'm looking forward to the back half.

Ed Woo, Ascendiant.

Thanks for taking my question. In terms of working capital, in terms of receivables and inventory, do you think that the amount of investment (technical difficulty) in the second quarter first half is going to be reflected in the second half, particularly with your expectations for inventory levels?

Actually, you cut out a little bit. Could you repeat the question?

I guess just a follow-up on the prior question. You did mention that you had higher unit costs for some of your inventory, which is driving a higher level. Do you think that's going to persist through the rest of this year? Then also on your cash balance and (technical difficulty) it seems as if your cash was a little bit lighter than I expected, and it seems like your receivables were a little bit higher. I'm not sure if that trend will continue or whether you can provide any color on what your cash balance will be (multiple speakers).

Expect to end the year, both in accounts receivable and inventory at seasonal lows. So from the 2015 operations, we expect free cash flow of about $30 million in that ballpark, and then we expect working capital to decline in upwards of $100 million based off of the level of AR that we ended the year at. So as far as the interim quarters, we are where we expected to be. And the biggest difference is in -- I think the cash flow is based off of the higher sales we had. We were up 28% in Q1 and about 6% in Q2. But basically the DSOs were comparable at 80 days. We were at 79 days this time last year. So we are very comfortable with where the balances are and expect them to be down, again, based off of the seasonality of the business.

Great. I just want to clarify. Did you say that free cash flow for the year is expected to be $30 million?

No, that's from current -- what I'm saying from current-year operations, the other $100 million, which will be reflected in our free cash flow, is coming from the working capital that we've built up at the end of 2014. Does that make sense?

A little bit. Maybe I'll take it off-line. And then the other question I had is -- congratulations on a great quarter for international. Do you think that's going to be driving mostly your growth in the back half?

No. It will be driving growth as we said for the next three years, with the strategic plans that we have implemented.

Great. Thank you and --

-- We are achieving, so from Latin America to China, to the emerging markets, to expanding many more rights with their licensing partners, in EMEA. That's one of our biggest initiatives for growth.

But we are also getting growth, we see growth happening in just North America, one is by getting more shelf space at retail. There's less competition. There's less great product coming from the marketplace. We see dotcom, which has increased for the first half up 23%. So there's a lot of different areas that we see growth. The dollar chains. We are now, as I mentioned earlier, we've realigned our pet business, which we are looking very much forward to seeing at the back half and really next year growth.

There's a lot of movie lineups for the following years. Star Wars, we believe is going to do great this year, but phenomenal next year. We have Batman vs. Superman next year, Warcraft. We also have Nintendo, which has aligned themselves with a great mobile company that's going to bring their content really much more to today's children.

So there's a lot of other areas that we see growth in addition to we are still very active in the acquisition mode. Even though we announced a buyback just a while back, it's been part of our DNA since inception over 20 years to grow through organically, grow through international, grow with licenses, grow with our own IP, at the same time using our capital allocation, when needed, to buy back stock at the same time when there is an acquisition that's appropriate, and is accretive to the company, that gives us areas of growth.

And the acquisition doesn't necessarily have to be in our call it kids consumer product area business, just like our Halloween business or our pet company. So there's a lot of exciting things out there that we see for the next few years.

Great. Thank you.

Jeffrey Thomison, Hilliard Lyons.

Thanks. Good morning gentlemen. I had several questions. You touched on these topics in your comments but I wondered if you may make a few additional comments. First of all, congrats on a satisfying quarter. By my count, that make several quarters in a row where you beat expectations. So good luck on continuing that.

The questions. First, can you give a little more detail on the evolution of the share count, including the actual shares outstanding at the end of the quarter, and/or currently, and then actual and/or fully diluted share count expectations for the back half or for the fiscal year? The more information on share count, the happier I am.

And then the second question probably for you, Stephen. Can you elaborate a little bit more on the potential for and the expectations for Sing-A-Long Elsa relative to those tough comps that we mentioned on Snow Glow Elsa. I'm just curious what distribution and marketing spend might look like for the product on your part and/or Disney's part. And on an unrelated note, do you have any assumptions regarding the time frame for the full-length sequel to Frozen that is going to be in development?

I'll let Joel -- are you ready, Joel?

Yes. On the share count, we have 23 million shares in the float. And from that, we deduct about 1 million in unvested restricted shares and 3 million from the prepaid forward of 3.1 million shares that we did in conjunction with the convert in 2014. So for basic EPS calculations, we use approximately 19 million shares. And for fully diluted, there are about 23 million shares underlying the 2018 and 2020 converts, which brings the full-year diluted share count to 42.4 million.

And an update on the buyback, we purchased just under 0.5 million shares to date. And since that will have been repurchased -- or the weighting of that would be 50% since it was about halfway through the year, that would reduce the fully diluted for the year by 250,000, which is negligible in terms of the full-year count. Does that make sense?

Yes, it does. But is there any -- I guess I know your answer on this anyway, but I'll ask. I'm just curious. The buyback authorization goes through March 2016. Anything that we should think about in terms of how you're going to spend the remainder of the $30 million or the timeframe of that?

The date on that was simply the window that GE capital, which is the financial institution that we have our credit facility with, they didn't want an open-ended repurchase. It just gives them the flexibility to extend it or whatnot, based off of what's going on in March. So the only reason why there is the time limitation was more of a backstop for GE. They have been a great partner of ours, and we have no expectation that they wouldn't go along with whatever management considers appropriate at the time.

As far as the buyback, the general parameters are that it's from time to time an open market. So it's something that is assessed. We have a committee, a board of independent board members that are overseeing the process. So it's still authorized and being executed on.

It's just interesting -- just doing the math from your press release, your average cost through that July 20 period has been around $9, whereas the share price, as you know, has been below $9 during much of the year, or I guess perhaps since you launched the authorization.

I think, Jeffrey, on that when we announced the initial buyback, the prices fluctuated from call it around high $8s to $10. And the buyback has been done through a bank itself. So firstly I'm happy where we bought it at, but it's been -- it goes through a committee. But I believe we bought it in the period in which we -- I think it's the last couple weeks at around I think it was $8.90. And I think that's been at some of the lows over that period of time.

Okay. Fair enough. That is all.

Is that your last question for Joel?

It is, yes it is.

So the Sing-A-Long Elsa doll has -- I'll use almost on a full worldwide basis, has been beyond well received. The receptiveness from every major retailer from the Tescos to places in Brazil to the US market is terrific. And that's call it the Snow Glow Elsa 2.0. We also are selling still the Snow Glow Elsa in the market at the same time.

So, we have that going until we launch the Sing-A-Long Elsa, and we have a wonderful campaign of marketing, both digitally as well as we have the normal TV marketing campaign. So that is -- the achievement of the Sing-A-Long Elsa last year was on a frenzy. This will be a great product line.

But we also do not just have the Sing-A-Long Elsa, we have Do You Want to Build a Snowman jewelry box, which is an additional item which we didn't have last year. We also have the Ariel Color Under the Sea, which is another TV item which is promoting Ariel, which is a very successful Disney Princess.

And then lastly, we have the DVD release of Cinderella live-action which will be in fall this year. So a lot of that all comes together. And we have many new items which I won't go through all the minutiae that we've developed for Frozen. So the items that you saw last year, you have some carryover. But many of the items that you have this year are new items.

But some of the perennials that we have that we believe will go on I won't say for a life time, but will go on because Disney is keeping a huge amount of effort behind Frozen I think for generations to come. We have the Frozen dress-up. We have the seasonal areas of Frozen and the Moose Mountain and Kids Only.

So we have a huge breadth of Frozen products. And you can pull up -- I think it's under Disney's financials -- if you look at Cars, that hasn't had true content for many years, it still does well over $1 billion or $2 billion at retail sales. Toy Story still does, and there hasn't been really any real content.

So Frozen has been a great run for the Disney company and many people, for us, clothing companies, food companies. So it really is still strong. We are booked more for Frozen this year than what we shipped all through last year, so it does show the strength of Frozen. So on that side of it, we are really happy. The I'll call it the frenzy has subsided, but the excitement is still there.

And then Disney also tentatively announced their movie release in 2017 for Frozen II. And they also tentatively announced Frozen will be going on national -- their network next year. And they have done a huge amount of build quicker than any property of Disney on Ice, I think Frozen on Ice, there is a Frozen on Broadway.

Across the majority of their parks, they have built in a frenzy fashion, a whole area of Frozen which is Anna, Elsa and Olaf. I was just at Disney two months ago and they had it set up. And there are some things we are unaware of that they have planned. So their backing of Frozen isn't going away. They believe it's their new perennial. It's a princess in which they own, they developed, they created, so it's their baby. So we are excited to be partnered with them for their baby and in fact we extended many of our licenses over the last few months, so it's something we are really excited about.

Stephen, do you think the 2017 date for that sequel is pretty firm?

I don't know the month, but I do think from only -- again, from what we have listened to and they have said it publicly, that it is firm. Things do change. You see it change all the time, but they have announced it publicly that it's in 2017. And then they announced a lot of different things that they are doing for fall this year and through 2016. So I feel pretty confident myself.

Okay, great. Thank you very much.

Linda Bolton Weiser, B. Riley.

Hi. Can you just repeat? I think you said on the gross margin, did you say adjusted for close-outs? So an adjusted number would be like 30.7% in the quarter, is that correct?

Yes. We had some sales, lower margin sales, on some discontinued licenses. So there was about a 70 basis point drag.

So it seems to me that things like that that kind of impact the gross margin occur periodically, quarters here and there. So I'm just kind of wondering. Is it something you can project? And I guess that's related to my question on the year's guidance. I had calculated the repurchase was a little bit accretive, like maybe as much as $0.05 to the year's EPS. So I'm curious why you wouldn't raise guidance for that, or is it that you're just kind of trying to be conservative because of things like close-out hits, or maybe you can just explain kind of your guidance thoughts for the year and why you wouldn't raise.

Sure. I'll break it into two parts, one being the buyback, because we are halfway through the year, the weighting of the shares. As I mentioned when I walked through the share count, the 0.5 million to date is only 250,000 shares on 42.4 million, so it's negligible.

As far as the close-outs, we still have about two-thirds of the sales yet to ship in the back half. So, one, we are comfortable with the 31%. The normal course of business, we do have things as licenses end and whatnot. It added modest sales but contributed no profit. So while we are still very excited about the year, and we've got a lot of great initiatives, a lot of the year has yet to play out. So we are just being conservative.

Okay, great. And then can I ask you about -- you said the number and I just didn't catch it. Did you say operating cash flow for the six months or the quarter?

It was $12 million for the quarter. So it was $38 million in Q1, $12 million approximately in the second quarter, $50 million year-to-date.

And then sorry to ask about it again, but when you said the $30 million, did you mean $30 million operating cash flow for the year, including working capital changes, or can you just clarify one more time what you meant by the $30 million cash flow?

The $30 million would be free cash flow from 2015 operations. I was breaking it out. So we will have approximately $100 million from the reduction of working capital since we ended 2014 with inventories at a high, and also accounts receivable at a high because sales were up 82%. So, I was just breaking down the 2015 cash flow between the two pieces.

So that's before CapEx or after CapEx?

It's after CapEx. It's after taxes, cash interest, and CapEx.

Okay, so free cash flow. Got you.

Correct.

Right. And then just the next couple of quarters, I guess if we kind of take your guidance on sales for the year and kind of plug in some numbers for the third and fourth quarter, just roughly I've got third quarter up about the same as this quarter, about 5%, and then a big double-digit decline in the fourth quarter. Can you give -- I know you don't want to give guidance, but do you think the third quarter is actually going to be higher growth based on the shipment pattern, like maybe closer to 10%, or do you think it's similar to this 5% we saw this quarter just based on your shipment expectations?

I think it's closer to the latter. It is our biggest quarter, and in terms of the cadence, it was -- the biggest decline was forecast in the fourth quarter. So it's closer to the 5%, and that would be on the high side.

Okay. And then finally, just I think you said the role-play segment in the quarter was down $68 million versus $75 million. What was the reason for the decline in the quarter in that segment?

The disguise. In 2014, we had a lot of competitively priced products that drove both volume, and if you remember second and third quarter, margins were lower because of those sales.

Okay. Okay. I think that's it for me. Thank you so much.

Thank you Linda.

We have no further questions at this time. Mr. Berman, I'll turn it back to you for closing remarks.

Everybody, thank you very much for attending the call. We've had earlier calls with analysts and we will be speaking to investors and analysts throughout today. So if there's any follow-up calls or questions, please feel free to get on our schedule, and thank you very much for attending our call. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.