Hasbro, Inc.
Q4 2019 Earnings Call Transcript

Published: 11 Feb 2020

[Operator:]

Good morning. And welcome to Hasbro's Fourth Quarter and Full Year 2019 Earnings Conference Call. At this time, all parties will be in listen-only mode. [Operator Instructions]. Today's conference is being recorded. If you've any objections, you may disconnect at this time.At this time, I'd like to turn the call over to Ms. Debbie Hancock, Senior Vice President of Investor Relations. Please go ahead.

[Debbie Hancock:]

Thank you and good morning everyone. Joining me this morning are Brian Goldner, Hasbro's Chairman and Chief Executive Officer, and Deb Thomas, Hasbro's Chief Financial Officer. Today, we will begin with Brian and Deb providing commentary on the company's performance and then we will take your questions.Our earnings release and presentation slides for today’s call are posted on our investor website. The press release and presentation include information regarding non-GAAP adjustments and non-GAAP financial measures. Our call today will discuss certain adjusted measures, which exclude these non-GAAP adjustments. A reconciliation of GAAP to non-GAAP measures is included in the press release and presentation.Please note that whenever we discuss earnings per share or EPS, we are referring to earnings per diluted share.Before we begin, I would like to remind you that during this call and the question and answer session that follows, members of Hasbro management may make forward-looking statements concerning management's expectations, goals, objectives and similar matters. There are many factors that could cause actual results or events to differ materially from the anticipated results or other expectations expressed in these forward-looking statements.These factors include those set forth in our annual report on form 10-K, our most recent 10-Q, in today's press release and in our other public disclosures. We undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call.I would now like to introduce Brian Goldner. Brian?

[Brian Goldner:]

Thank you, Debbie. Good morning everyone and thank you for joining us today. 2019 was the pivotal year for Hasbro. We achieved our plan to profitably grow revenues, performing well in a dynamic retail and global trade environment. Hasbro revenues grew 5% absent FX and adjusted operating profit increased 12%. We ended the year with good momentum in many markets and across brands which has carried forward to the start of 2020.We executed throughout the year as a more agile, modern and digitally driven company after re-designing our go-to-market strategy and commercial organization in 2018. The global teams delivered double-digit revenue and point-of-sale growth in pure play e-com.Our channel strategy drove growth for the year including double-digit gains in the value channel, the fan channel and grocery and drug. We advanced our retail strategy and execution for online and omni-channel partners ending with retail inventory of good quality and levels as well as product design specifically for these growing channels.We navigated the challenges and disruptions that arose in the global trade environment, implementing programs to meet revenue and margin goals during the important holiday season.We delivered compelling gaming experiences, led by the work of our teams at Wizards of the Coast, our positive results to date have us on plan to double Wizards of the Coast revenues over five years from 2018 to 2023.MAGIC

[Deb Thomas:]

Thank you, Brian and good morning everyone. 2019 was a good and important year for Hasbro. We delivered on our goal of profitable growth. We managed through a challenging trade environment, and we undertook financed and at the beginning of fiscal 2020 closed the eOne acquisition.Our teams worked extremely hard to ensure we executed at a high level this holiday, to drive fourth quarter and full year revenue and profit growth, while also diversifying our supply chain and completing a major acquisition.2019 revenues excluding foreign exchange increased 5%. Operating profit margin adjusted for eOne acquisition related expenses increased to 14.2% and full year adjusted EPS was $4.08 per share.We generated $653.1 million in operating cash flow during the year, and returned $398 million to shareholders. In support of the eOne acquisition during the fourth quarter, we raised $3.3 billion in net proceeds from our equity and debt offerings, which is included in our year-end cash balance of $4.6 billion.Excluding these financing activities, our year-end cash balance is in line with 2018. During our first fiscal quarter of 2020 with the deal close, we borrowed 1 billion of a term loan to round out our eOne financing and paid $3.8 billion for eOne’s shares as well as approximately $830 million to redeem their outstanding notes and revolving credit facility.We are so pleased that eOne is now part of our team. Overall, Hasbro's revenue grew at actual and constant rates and on and as reported an adjusted basis, operating profit increased. Looking at our segments, U.S. and Canada segment revenue grew 3% for the year, with growth in partner and emerging brands.Underlying profit was essentially flat as we absorbed higher royalty costs in support of strong partner brand growth, higher intangible amortization associated with Power Rangers and higher shipping and warehousing costs from carrying more domestic inventory and managing an increasingly just in time retail network.Retail inventories were up slightly in the U.S. at year-end behind growth and partner and emerging brand inventories. International segment revenues grew 4% Absent an unfavorable FX impact.Partner brand revenue grew and Absent FX emerging brands were up. Following significant reductions in 2018 retail inventory levels, they remain in good shape internationally. Operating profit for the segment more than doubled as retail inventories were at much improved levels. Allowances declined, operating costs came down and revenues grew.Entertainment licensing and digital segment revenues increased 22% with growth in digital gaming, led by MAGIC

[Operator:]

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions]. Thank you. And our first question is from the line of Stephanie Wissink with Jefferies. Please go ahead with your question.

[Ashley Helgans:]

Hi, good morning. This is Ashley Helgans on for Steph. Thanks for taking our questions. So Digital Gaming put up impressive growth. Can you speak to the key measures you're seeing that give you confidence in growth sustainability, and what can we expect in 2020 in terms of new digital games or features?

[Brian Goldner:]

Sure. Well, good morning. And we did see very strong growth for MAGIC

[Ashley Helgans:]

Thanks for all the color, and congrats on the quarter.

[Operator:]

Our next question is from the line of Arpiné Kocharyan with UBS. Please proceed with your question.

[Arpiné Kocharyan:]

Hi. Thank you very much. So this might be too early to ask, but I'm going to try. Now that we have taken a closer look at eOne books, do you have thoughts around sort of puts and takes for the synergy guide you've given out the initial 130 million when you announced the acquisition. Even if you cannot give exact numbers, how do you feel about that number now versus when acquisition was announced, or anything broadly about the portfolio of brands you're looking at today in this retail environment? Thank you.

[Deb Thomas:]

Good morning Arpiné. Thanks for the question. Today we're only six weeks into operating with eOne and we're still in the process of finalizing our combined budgets. But I can say that, nothing has changed what we estimated from synergy impacts, so far for what we've seen. We'll give more color on what the two businesses look like together in on the 21st as best we can. You know as I said, we're only six weeks through. But Brian, do you want to talk about our brands together?

[Brian Goldner:]

Sure. It's great now to have Hasbro and eOne come together as a company. Together we'll focus in three major areas that we'll continue to talk about. Certainly, entertainment and storytelling, and they're profitable entertainment business and driving more Hasbro IP across storytelling platforms, our gaming business and then consumer products including toys and games. We continue to see the top growth drivers of the toy and game industry all being associated with both storytelling as well as engagement across gaming and storytelling. So we also see of course that streaming is going to play an increasingly important role. We can talk more about that.So immediately we add PEPPA PIG, PJ MASKS and RICKY ZOOM to our portfolio. The team's done a great job there, and we expect additional growth. We're also beginning to partner together between eOne and Hasbro teams to reimagine brands like MY LITTLE PONY. As you know in 2019, it was our ninth season, final season for the current MY LITTLE PONY TV series and now the teams taking up the mantle on MY LITTLE PONY in earnest for our plans in 2021 and beyond that would include our animated feature film as well as new television for that brand; such great opportunities as the teams [indiscernible], and we won't talk about all those initiatives today but certainly over the next several weeks and months you will see more Hasbro IP come to the market via incredible talent and expertise at eOne.

[Arpiné Kocharyan:]

Thank you.

[Operator:]

Our next question comes from the line of Drew Crum with Stifel. Please proceed with your questions.

[Drew Crum:]

Thanks. Good morning guys. Brian, you made a couple of comments about NERF. Can you talk about how it performed relative to your expectation during the year? Is it still the company's largest brand and how are you thinking about the brand in 2020? Should we assume growth for NERF this year? Thanks.

[Brian Goldner:]

NERF made substantial progress in 2019. In fact, in the U.S. where we had all of our new innovation including NERF Ultra as well as the Fortnite line in the marketplace, we really saw very good momentum for the brand. In fact we were up in POS online, where consumers have direct access to their favourite blasters. We grew market share in the blasters category as we describe for the global business, and overall, our sales for the brand were only down very low single digits in the fourth quarter, so we expect that momentum to pick up as we now get the access to new innovation that will go out globally. We have several new innovative launches coming in 2020 as well. The brand is still our top brand for the company and we also saw that the brand enjoyed some of our top sellers over the holidays online included both Fortnite as well as our Ultra one product.So again, very enthusiastic about the brand, [Indiscernible] believes fully in long term growth prospects for the brand, and believe that 2020 is a pivotal year as we bring more innovation and we bring the momentum we've seen in the U.S. And actually in a few other territories around the world, NERF has continued to perform well, and we'll bring that all to bear in 2020.

[Operator:]

Thank you. Our next question is from the line of Felicia Hendrix with Barclays. Please proceed with your question.

[Felicia Hendrix:]

Hi, good morning. So Brian, I just wanted to get back to your comments about 2020 compared to 2017. I'm interpreting your comments that given the headwinds it may take a further year to get to the 2017 metrics. So just wanted to see if you could comment on that. And then my follow up is on some of the POS details that you gave in your prepared remarks for the fourth quarter. I think you gave some of the business lines but not all. So I was wondering if you could give us overall POS and then just review them by revenue line. And I'm also wondering how RICKY ZOOM has been doing since launch? Thanks.

[Brian Goldner:]

Sure. You know, first and foremost, we talked about our plans for 2020 now include eOne and so of course we immediately add brands like PEPPA PIG, PJ MASKS and RICKY ZOOM so that the comparisons that we had had historically now are no longer relevant as we sort of step forward and beyond what was our expectation for 2020 to look somewhat like 2017. Having said that, in the underlying toy industry, we've noted a few of the headwinds. We do expect to continue to grow profitably that underlying Hasbro business in revenues and to continue to grow our operating margin over time as we continue to make progress around gaming and our consumer products business, entertainment licensing and digital.And so I'd say that we're now moving ahead into 2020 as we operate as one company with Hasbro and eOne. As we look out over the time horizon, clearly, we believe the substantial growth opportunity over the next several years through 2022 as we've outlined for you as part of the acquisition.The POS, we talked a bit about on the call clearly North America saw some growth globally for the full year. POS last was down literally low single digits, and then again, as we -- as we look at the business, we see some really substantial growth around for the full year around our toy business. We see obviously substantial growth around our partner business and brands. I'd also say, we wanted to look at year-to-date because we have seen some really good momentum year-to-date in the U.S. Our POS year-to-date is up 10% and in Europe our POS is up as well. So again, as we moderated those declines in the fourth quarter, we're seeing gains in Europe beginning for the first quarter 2020.And again, it was a -- it was a late holiday. We saw that momentum build around the holidays and we saw very good performance from several of our brands recognizing that brands like MAGIC

[Felicia Hendrix:]

And RICKY ZOOM?

[Brian Goldner:]

RICKY ZOOM’s had a great start. It's seen hundreds of millions of streams coming off of Yoku in China as well rolling out around the world, and I think the team is going to talk about the second season of Ricky coming shortly, but I'll let them describe that to you or for you at Toy Fair.

[Felicia Hendrix:]

Great. Thank you.

[Operator:]

And the next question is from the line of Jamie Katz with Morningstar. Please proceed with your question.

[Jaime Katz:]

Hi. Good morning. I think you guys commented a bit on supply chain expenses being a bit elevated. Can you let us know how that is expected to play out over the remainder of 2020 does that level out? And then, I don't think there were any comments on the Disney contract renewal, which I believe is up this year, so if you have any comments on that, that would be helpful? Thanks.

[Deb Thomas:]

Sure. So from a supply chain standpoint we did mention that, with the changes to domestic versus direct import shipping and we're still saying, we saw some higher domestic shipping it's requiring more cost particularly in North America as we add additional warehouses. You don't see the impact on the full year as strong as we did on the third quarter, where we talked quite a bit about it. But that is a reality, it's a slightly higher cost. That being said, our ocean freight contracts are looking good go-forward and our airfreight contract, so are actually bringing product here if its coming to the U.S. is a bit less expensive. However, it's a matter of moving it through the supply chain when it gets here. But we do think that that mitigate out and of course, we look at that when we set our overall pricing for our product.

[Brian Goldner:]

Now, in terms of Disney, we've had a very strong year together and very successful partnership that continues in 2019 and into 2020. Now first and foremost, partnership with Disney on Frozen 2 was amazing. We are -- Hasbro is the leading company on the Frozen property. Thus far we expect to continue to see strong results in 2020. The home entertainment window is going on now with that new innovative products from our teams. We're also driving our PRINCESS business, Mulan comes in March and we have Raya, the last Dragon that comes in the fall.We're also seeing the great impact from Disney Plus, the fact that the library of Disney PRINCESS films are now available together, only gives us more opportunity to continue to work with Disney to bring to life those characters in product and we see a major of course expansion of Disney Plus across Europe in 2020, which benefits us. In the holidays, the castle was among the top sellers, they earned [ph] their Castle for Frozen.For Marvel, we had a tremendous year around Avengers, as well as with Spiderman. We also focus on the fan economy with the Marvel 80th product, the 80th year product. So again, its a very strong partnership. And for Star Wars, we saw great results around Star Wars both from Triple Force Friday in support of the Rise of Skywalker, as well as for the Mandalorian. We're incredibly excited that the Mandalorian Season 2 will come to Disney Plus this fall.We're also seeing and will have great support around the Clone Wars, which is the seventh season which comes to Disney Plus in the spring. And again, we continue to drive and support the brand. I'll give you all that as backdrop for how we work in such a substantial way with the Walt Disney Company. We continue engagement with them and while we take nothing for granted, we believe we will continue to be a partner of choice across these properties in to the future.

[Jaime Katz:]

Thank you.

[Operator:]

The next question is from the line of Tami Zakaria with JPMorgan. Please proceed with your question.

[Tami Zakaria:]

Hi. Thanks for taking my question. Could you talk about the puts and takes on the gross margin line that you saw in the fourth quarter? And then I have a follow-up.

[Deb Thomas:]

Sure. So from a gross margins standpoint, we really did see the impact of the benefit of the high entertainment related property that we talked about the great movie from -- actually Brian just talked about the great movies that came in the fourth quarter from our partners at Disney. So those properties tend to carry a higher gross margin, because they've royalties to offset a bit further down the P&L or to go against them, I shouldn't say, offset that. So you see the impact of that in the fourth quarter.You also see the impact of better performance on closeouts throughout the year, as well as pricing of our product overall. So you're saying all of the things mix into the fourth quarter and we are getting the benefit that we talked a little bit about -- bit earlier, within the gross margin line of some reduced costs from our supply chain and all the work that our team has done to actually bring product into the country.

[Tami Zakaria:]

Got it. That's helpful. And then, your entertainment digital and licensing revenues were up and impressive 22% for the year. So, could you provide some color on the mix of this growth coming from Bumblebee versus MAGIC

[Brian Goldner:]

We saw across each of the discrete parts of the entertainment, licensing and digital business. Our consumer products licensing business is up. Our digital gaming business was up with a number of our digital games with partners performing incredibly well including YAHTZEE With Buddies! which is a top 50 game on the Apple app store. We had a new monopoly game launching from Marmalade Studios that launched in December and charted as number one as it launched.Our POWER RANGERS digital games continue to performed well. And in first quarter 2020 we have a G.I. Joe game in support of the brand called G.I. Joe War and Cobra launches in Q1, as well as a SCRABBLE go game that were launch from Scopely in Q1. So digital gaming grew, our entertainment business grew, and our Wizards digital business all grew in 2019. Arena grew throughout the year. Arena grew in the fourth quarter offset by a bit of decline in legacy MAGIC

[Tami Zakaria:]

Got it. thank you so much.

[Operator:]

Our next question is from the line of Eric Handler with MKM Partners. Please proceed with your question.

[Eric Handler:]

Yes. Thank you very much for the question. Two things. First, can you talk a little bit about for modeling purposes, the seasonality associated with eOne. I know, you're going to talk a little bit about this during the analyst meeting, but for modeling purposes now wondering if you could talk a little bit about this? And then also, you've eluded in the past about this sort of being a inflection for POWER RANGERS. I wonder if you could go into some details about POWER RANGERS and some of the products that you've got for this year?

[Deb Thomas:]

Sure. So Eric, as I mentioned, we are actually just working on finalizing our combined budget with eOne and really looking at the seasonality. So much of their seasonality and their family brands business is very similar to our. Seasonality are historical seasonality. But in the television and film business its really dependent on actually very similar to us last year one of things Brian didn't mentioned in our entertainment and licensing is we had a big delivery of our streaming revenue last year which offset some of the benefits we're seeing on the revenue side and entertainment and licensing. But so much of that is dependent around delivery. So we'll give a bit more color on that as we move into the February 21st date.

[Brian Goldner:]

And for POWER RANGERS it was a great year on Beast Morphers who was a strong year one recognized that the bulk of our business really didn't began until the second quarter in 2019. In 2020, we have the benefit of the full year. And as we look at our ratings on Nickelodeon, we are number one in our time slot for kids two to 11. Season 2 of Beast Morphers launches Q1 in North America and then rollout globally. We're very excited about the brand because we continue to execute in gaming, in consumer products, in toys and games and we'll also add an array of experiences, live experiences for the brand as we rollout globally. So we believe in the growth prospects of the brand. And the teams are very excited about executing across the blueprint.

[Deb Thomas:]

Thank you.

[Operator:]

Our next question is from line of Tim Conder with Wells Fargo. Please proceed with your question.

[Tim Conder:]

Thank you. And just a couple of follow-ups here. One, Deb, little more color on the SD&A seem to be down substantially. And again, on an adjusted basis, if you could just give us a little more color there, the sustainability of that from the cost program that you have held or just a little bit more color on that from what happen in the quarter?And then, as it relates to Star Wars and the Mandalorian, if we look into 2020, how would you that the trajectory of the core Star Wars is relative, obviously, Mandalorian, maybe you and all that's going well. But if you put those two together, the collective Star Wars, just maybe how that's working?

[Deb Thomas:]

Sure. So Tim, you are right. You're seeing the benefit of our cost savings initiative coming through that SD&A line. But what somewhat offsetting that -- and you also get a little bit of benefit of FX. So, while, FX is negative on the top line. The impact -- translation impacts are bit positive on lines like SD&A. But within that, we're seeing the investment that we're making in our digital gaming business. So while a piece of that comes in the product development line, you're seeing the portion of that for what we've capitalized and we're depreciating is coming through the SD&A line.So, as far as sustainability, we do believe our cost savings are sustainable. We might get a bit more in 2020. But its going to be difficult to pull out as we have eOne gather. So we'll try to highlight what we think the outline is going to look like in 2020 on the 21st. That's a lot of 20s. But we will continue also to make those investments in digital gaming, because as we've talked about, those are really driving revenue for the future. So while we're seeing some that expense coming through now, and we continue to see that as a great area of growth. Brian talked about MAGIC and DUNGEONS & DRAGONS, and all of the other great things you're going to hear Chris talk about on the 21st. We continue to believe that's a really important line to invest in. The other thing that's offsetting some of those cost savings this year is a bit of compensation expense as well.

[Brian Goldner:]

Yes. So for Star Wars, its great to see the level of brand engagement that's coming from the fan. But also its really impressive to see how kids are coming into the brand and their engagement that comes from both the Rise of Skywalker as well as for the Mandalorian, We are very excited to see the Mandalorian Season 2 coming later this fall. Disney Plus also has the Clone Wars that are on in the spring. There's also a live-action kids game show called Jedi Temple Challenge, which we think we'll continue to engage kids. And then of course, they have two major theme park launches for Galaxy's Edge, both at Disney World and Disneyland. We think all of that is -- all adds to the engagement around the Star Wars brand and we're seeing that in the results.Certainly, we've seen great growth of our Black Series and the fan-oriented product, but we're also seeing engagement around Lightsabers and role play that are expressly designed and made for kids. We think the brand continues to perform very well in 2020. We're obviously excited about the home entertainment windows for Star Wars, of course, as well as for Frozen. And we believe that will just continue to add to engagement. I think that this is a property, as Disney's outlined, that will perform both in film, but also in television and continue to evolve as a property that will be in stream television via Disney Plus and engage fans and families in that way.I think that as we sort of step back, we think that this streaming entertainment that also engages people in other attributes of brands including merchandising and consumer products is the next watchword for our industry and for the category. And it's perfectly timed with our efforts with the one that we develop our properties for television and for film.

[Operator:]

Thank You. Our next question is from the line of Michael Ng with Goldman Sachs. Please proceed with your question.

[Michael Ng:]

Great. Thanks for the question. I just have one for Deb and one for Brian. Deb, could you just talk a little bit about how advertising expense in the quarter? It was the lowest level in 4Q that we've seen in several years. I know you've mentioned the few things; the high level of partner brands mix and some marketing efficiency, but could you just give a little bit more color there? And said differently, should we expect next year's advertising expense to return closer to 2018 levels if partner brands mix normalizes? And then, for Brian, I was just wondering if you could talk a little bit more about the engagement and revenue trends for MAGIC arena. How did that look in the quarter relative to earlier in the year for instance? Thank you.

[Deb Thomas:]

Sure. So good morning, Mike. From an advertising standpoint, we did talk about. We had the unusual effect of these two major entertainment properties coming late in the fourth quarter both in Frozen 2 and in Star Wars. So, combined the advertising spend around that was a bit, while it was still high and we're very engaged and making sure, we're promoting products along with all the wonderful promotion that was done by the Walt Disney Company. We did see that we have lower advertising in the quarter in particular.But when you look at that combined with royalties which is a reflection of the product that moved in the quarter, it was actually, we were up 30 basis points when you look at the two items combined. We are actually seeing savings so in our advertising line particularly as we move more and more to social media and we see where our consumer is actually consuming the media and advertising component. So, we expect our cost to be a bit lower in 2020 than they have been in the past. And we'll give a little bit more color around that as we move into the 21st and our Investor Day.

[Brian Goldner:]

And for MAGIC

[Michael Ng:]

Great. Thank you both.

[Operator:]

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

[Linda Bolton Weiser:]

Hi. Thank you. You had mentioned in your commentary that retail inventory in the U.S. was slightly up year-over-year at the end of the year. Does that cause you any concern going into the first quarter? Or is it that the POS trends are strong enough so that it's not a concern? Thanks.

[Brian Goldner:]

Yes. Sure. The inventory levels in the U.S. are up just slightly. And so, yes, the POS trends we're seeing are in excess of the inventory level increase that we've seen. And we do feel good about the momentum in the brand. We're seeing great takeaway at retail. Lots of engagement around several of our properties. Lots of new initiatives coming for Q1. We've outlined just a few on the call today. But certainly the home entertainment windows coming for both Star Wars and for Frozen -- with Frozen home entertainment window beginning today is certainly incredibly helpful as we engage more kids, fans, and families in those brands. So it's very exciting. It's a great start to 2020.

[Linda Bolton Weiser:]

Great. And then, can I just ask you about your e-commerce, maybe if you could just give us a little color on how your penetration in e-commerce has progressed. And remind us what percentage of your revenue it was in 2019 and how they compared to 2018? And how you think you rank versus competitors and penetration in e-commerce? Thanks.

[Brian Goldner:]

Yes. Our e-commerce business was up substantially in 2019 far in excess of our underlying POS gains. And we've seen incredible growth in both pure play e-commerce, as well as with omni channel. We see our retailers gaining share in those areas. We've seen that for e-com players as well as omni-channel competitors. And our products on e-commerce performed incredibly well with top sellers have included products from Frozen from NERF, and are FurReal Cubby, which enabled FurReal to regain its status as the number one brand in that space. We see Hasbro Games, particularly classic games over the holidays performing very well.And we have seen a several percentage point increase in our overall sales and e-commerce as a percent of total. And so I would expect that e-commerce sales as a percent of total now should be in the low 20s. We're just looking at some final numbers there. But again, we expect that to continue to progress year to date 2020. E-com sales continue to be several fold stronger than underlying retail sales and underlying retail sales are good. So again as we give consumers direct access to our products either through e-commerce, through omni channel, they are making the choice for several of Hasbro's brands and our innovative products.

[Linda Bolton Weiser:]

Great. And then, just one final question. On eOne, I know it's early days, but I think there's some businesses there that some would regard as potentially non-strategic. Are there any pieces of the eOne that could be carved out and divested to help you delever your balance sheet a little bit more quickly?

[Brian Goldner:]

Well, right now we're really focused on the -- with the teams on engagement and getting several of our initiatives and their initiatives off into the market. In addition to the pre-school and kids initiatives that they have in market today they are taking on board some of Hasbro IP, as well as they have some new original creations that will come out in the market over the next couple of years. We're very focused on the revenue synergies and also achieving and hopefully going beyond on our cost synergy side on the guidance that we've provided to you.And that in due course we'll take up the question of whether there are opportunities for elements of the business that may not be core strategic. But our focus right now is great momentum as we come together as one team achieving that cost synergies and beginning to stand up the revenue synergies that you'll see impact our business over the next number of years.

[Linda Bolton Weiser:]

Great. Thank you very much.

[Operator:]

Thank you. Our next question is from the line of Ray Stochel with Consumer Edge Research. Please proceed with your question.

[Ray Stochel:]

Great. Thanks for taking my questions. Are you seeing any changes or you have -- are you implementing any changes as a result of YouTube's children content policy changes, whether it's for unboxings, influencer marketing, how you think about the fan economy or the collectibles market?

[Brian Goldner:]

We're engaged with YouTube to fully understand where those changes will come out. Obviously, we abide by all of the relevant rules not only for YouTube, but for CERO and other governing regulatory bodies and of course, we want to ensure the safety of kids as they view content on the Internet. And so, I'd say that's a an ongoing conversation and we'll probably give you more color over the next few months.

[Ray Stochel:]

Got it. Thanks. And then in terms of the difference between launching some -- launching content on more traditional linear media and feature films. How do you think about measuring and planning for demand for big streaming launches? And then, how are you thinking about any upcoming streaming platform launches and how you might be able to participate?

[Brian Goldner:]

Well, what's been fantastic is the success that the Walt Disney Company has seen with Disney Plus. We're very happy to see the success that they're having, the number of subscribers into the tens of millions. And the engagement with properties like Mandalorian. We believe that that's just the beginning of this next phase of engagement for fans and families around the world and it really portends great things as we look at our efforts with eOne to develop Hasbro IP for multiple platforms to drive storytelling and engagement of our brands. What we've seen across the industry is that the top growth drivers in the traditional toy and game industry are all associated with storytelling as well as engagement across platforms like gaming and other experiences. Just think about in the NERF business alone the impact from Fortnite. And as we've been able to develop innovative line for a Fortnite or as Mandalorian has really captured the imagination of fans, families, kids, just our opportunity there, even beyond the child and some of those products the fact that the Black Series products from the Mandalorian were selling so strongly over the holidays.It all says that people really want to engage with great character and story. It's been our belief all along, that's how we've oriented our company and that's why we'll continue to lead. And also how we're able to engage people in an online and omnichannel e-commerce world, the opportunity to connect content with commerce is incredibly compelling.

[Ray Stochel:]

Great. Thanks again.

[Operator:]

Thank you. The next question is from the line of Bryan Goldberg with Bank of America. Please proceed with your questions.

[Bryan Goldberg:]

Thanks. I've got two quick ones. I'm just curious based on your past experiences with Disney, how significant are the home entertainment window releases for intellectual property like a Frozen or Star Wars? In terms of stimulating partner brand sales, if you could walk us through a little more of what you could do to leverage these events, that would be very helpful.And then my second question is related to your comments on the potential of the supply chain disruption that you are seeing from Coronavirus, you called out some priority item you had flagged as making contingency plans for. And I was just wondering if you would be able to update it as to what brands those items associated with? Thanks.

[Brian Goldner:]

I'll take the first one and Deb can walk you through the second question. The answer to the second question. If I step back historically a bit, back in the days where DVDs were the way in which people saw home entertainment. We saw incredible impact from the launch of the DVDs as it came into the home. It engaged the family, engaged kids, who want to view content over and over again. We're really seeing the return of that kind of heyday of home entertainment enjoyment now through streaming services, and through electronic sell through windows, as well as for the DVD business.So home entertainment is back to at its pinnacle of success, in engaging fans and families. The opportunity for kids to see content over and over again, for families to enjoy that content and to also share it with younger siblings, who may or may not have made the trip to the theatre, but certainly can watch the content along with family and friends at home. The fact that more people are watching content at homes through stream services also benefits us, and we're seeing that across our business.So I expect that Home Entertainment will continue to increase in importance. That streaming services will continue to play an important role, and I think an increasingly important role over time as we now connect these great stories with people's desire to engage with brands across multiple platforms. And we're very excited about it. We're entering a next era of consumer and audience engagement.

[Deb Thomas:]

Great. Thanks, Brian. And in the Coronavirus, you know as we look at it our thoughts are obviously with the people impacted by the outbreak, and includes our third-party manufacturers and also our employees in China. We've had, and we continue to have office in third party factory closures. And really the biggest unknown right now is how quickly the manufacturing factories can get their production ramp back up given the amount of travel if you think about it when people travel to visit families in Chinese New Year's -- Chinese New Year, they need to travel back. So travel is limited. We know places are still closed. Our employees are working from home. So we have protocols in place with that. So, as we think about how all the efforts, we've made to diversify our manufacturing into different locations still about two thirds of our product overall, our global sourcing is coming from China.So we are looking at it very closely. Right now, the impact is small. The commercial impact is small, there's a bit in China as people couldn't shop during the holidays, but it's small. That being said, our first quarter is typically a lower revenue quarter for us. So the longer it -- it lasts, that the outbreak isn't contained, and people can't travel back and start production up again. There could be an impact on our first quarter, but for the full year, we remain optimistic that we'll be able to catch up over the full year and we'll continue to add color to the impact as we look through. There is no one particular brand that we would call out on that. We are prioritizing what needs to be done quickly, and moved here quickly as well.

[Bryan Goldberg:]

Thank you very much.

[Operator:]

Thank you. At this time, we'll turn the floor back to Debbie Hancock for closing remarks.

[Debbie Hancock:]

Thank you, Rob. And thank you everyone for joining the call today. The replay will be available on our website in approximately two hours. Management's prepared remarks will be posted on our website following this call. As we mentioned, we're hosting our annual Toy Fair investor event on Friday, February 21st, and we look forward to seeing many of you there. Thank you.

[Operator:]

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.