Hasbro, Earnings Call INSIGHTS: Avengers to the Rescue, U.S. Point of Sales

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On Monday, Hasbro, Inc. (NYSE:HAS) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Avengers to the Rescue

Drew Crum – Stifel Nicolaus: Brian, a couple questions. Starting with the Boys business, can you talk about the declines you’re experiencing in BAYBLADES and TRANSFORMERS? I think coming out of the first quarter, you’re pretty happy with the degradation you had seen in those businesses. Also can you talk about how the MARVEL business is tracking relative to 2007 and I’d also like to hear your thoughts on Europe as you headed into the second half of 2012.

A Closer Look: Hasbro Earnings Cheat Sheet>>

Brian D. Goldner – President and CEO: Sure. If you look at both TRANSFORMERS to brand as well as BAYBLADES, the performance is better than one would expect in a post movie or a post phenomena year. So BAYBLADES is tracking well. In fact in the U.S. the POS is up pretty significantly. TRANSFORMERS total brand is down as one would expect, but has been mitigated by television and expansion of the brand into other categories and so it was down less than one would expect in a non-movie or following a movie. So, again, fairly positive, although, we’re in a tough comp quarter versus year ago for both brands. As we look at MARVEL, the performance has been phenomenal. AVENGERS has performed great and is ahead of our expectations. We continue to be very excited about this brand as we roll into the third and fourth quarter with DVDs and other promotion around those brands. SPIDER-MAN has really just gotten started and feel very good about the product lines, as well as the performance there, and that will continue obviously throughout into the DVD periods. So I won’t be able to give you – I’m not going to give specific guidance versus 2007 because again AVENGERS is a new property for us (it wasn’t) out there in 2007. SPIDER-MAN has performed well and MARVEL has performed very well. So, I think overall our Boy’s business is well-positioned for the year. In terms of Europe, David, I’ll ask David to comment in the moment. Overall, we’re seeing bright spots and challenging spots, but overall our investments in emerging European territory, Eastern European territories, Russia and our Turkey business continue to perform exceedingly well, the U.K. has performed exceedingly well and a few other markets. Then we have a couple of markets where there is clearly some signs, the economic challenge, particularly Spain and I don’t know David if you want to comment further.

David D. R. Hargreaves – COO: Yeah, I mean not really. I mean clearly it is a challenging economic environment, particularly countries like Spain and Greece. On the other hand, history shows there is – you’ve got a good product line and good entertainment and lots of innovation. You can have a good year in a down economy and vice versa. So we think with the continuing strength of BEYBLADES and as well as a lot of new product launches coming later in year including things like FURBY, that we should have a pretty good year in Europe even despite the economic challenges and then, of course, our business in Latin America is storming ahead at the moment. We feel very good about our business there.

Brian D. Goldner – President and CEO: So Drew if you look even in a market like Spain, that is, from an economic standpoint very challenged, it was remarking that MY LITTLE PONY brand is up significantly in POS in the quarter. It is because we put television on the air. It’s part of our overall TV strategy, the fact that our brands shows are now in over 170 countries, really every country you’d want to be in globally, including throughout Europe and it’s beginning to perform quite well. So as David said, innovative product lines, entertainment backed product lines, which include our core brands and television do have a way not only mitigating, but helping us to grow despite economic challenging environments.

U.S. Point of Sales

Felicia Hendrix – Barclays Capital Inc.: Just wondering if you could give us some color on U.S. point of sales, Brian you talked about some specific lines but just wondering overall if you could give us some details on that?

Brian D. Goldner – President and CEO: Yes, I’ll give you a bit and then David can talk some specifics. Overall, through both the first half and into the quarter, the U.S. business was down 1% or 2% in total, but again ahead of the market because we’ve gained share in the U.S. market that was really driven by our Games business being down, obviously our shipments in games being down 7.5% in the quarters better than our overall POS, as we start to put new lines into the market including our Boys Action gaming segments. We have seen some very bright spots within our overall POS, but recognize once you take a decision to take and put less inventory into the market and restage the business around the consumer, clearly that has an impact just the amount of inventory you have in terms of overall POS. I don’t know if you want to comment further?

David D. R. Hargreaves – COO: Then I think when you go internationally, it’s more mix in U.K. and Mexico we are having really strong POS. In Spain where we talked about the difficult economy clearly our POS is down. I think if you go to the Latin American markets again I was (indiscernible) that business’s last week and clearly our businesses up by more than the industry in each of those markets, so we must be gaining share in places like Brazil, Colombia, Peru and Chile. Our business in Russia and Turkey is doing very well, clearly again the growth what we achieve in this greater than the market growth, so we must be gaining share in those markets as well.

Felicia Hendrix – Barclays Capital Inc.: That’s really helpful color. Brian, when you look to the second half of the year – POS you can’t project it, but, would you think that you would see an improvement there?

Brian D. Goldner – President and CEO: Yeah, I believe obviously, as we put more new innovation core brands and our partners in the market, you have more inventory which is part of our strategy, putting more inventory in line with consumer demand. We’ve also been able to re-orient our P&L, we talked about it earlier in the year to have significantly more marketing spend in the second half of the year than we had versus prior years in the second half of the year, really focusing in on increasing our market spend overall, but not going above the 10% to 11% range, total company total year. Again, all that will point to a greater rate of sale and great innovations in our product line, we’re particularly excited about a lot of our new innovation, be it the FURBY brand or this 1D, One Direction brand that’s coming in the Girl’s category, as well as LITTLEST PET SHOP, the fact that we have this whole new line of fairies which is already off to a pretty good start, albeit early days and MY LITTLE PONY. So that in each category, I think we have some great new innovations and things that have already shown us to be selling quite well. In Preschool, I think of the categories we’re happy as to see selling quite well is not just in SESAME, but really the Playskool Heroes line, where we’ve really re-oriented and expanded the play patterns for those brands to this youngest consumer and performing quite well.

Felicia Hendrix – Barclays Capital Inc.: When you’re looking at the fourth quarter versus the third quarter, you explained in your prepared remarks that (the order strength) is surprising if you just look at your overall historical trends, but you had said that it’s mainly due to tracking more how your International and Entertainment businesses tend to track seasonally. Is that a trend that you think we will see continuing on a go-forward basis or is that just something for this year?

Brian D. Goldner – President and CEO: Yeah, I think if you look go-forward, actually if you go back historically, go prior to 2010 and 2011 – 2009 actually fourth quarter was bigger than third quarter. So, again, it has to do with putting more innovation and more marketing in the quarter. It has to do with the trends within the International business and realigning up the U.S. to be more like a lot of our international markets. The fact that E&L, our Entertainment and Licensing segment, does tend to have higher revenues, so I would say this is really more a glimpse into the future of how we intend to execute our plans and it’s not inconsistent with the ways we’ve achieved our years and past years, although more recently it had been third higher than fourth.

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