Hasbro, Inc.
Q3 2013 Earnings Call Transcript

Published: 21 Oct 2013

[Operator:]

Good morning, and welcome to the Hasbro Third Quarter 2013 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. At this time, I'd like to turn the conference over to Ms. Debbie Hancock, Vice President of Investor Relations. Please go ahead.

[Debbie Hancock:]

Thank you, and good morning, everyone. Our third quarter earnings release was issued this morning and is available on our website. Additionally, presentation slides containing information covered in today's earnings release and call are also available on our site. The press release and presentation include information regarding non-GAAP financial measures included in today's call. Please note that whenever we discuss earnings per share, or EPS, we are referring to earnings per diluted share. This morning, Brian Goldner, Hasbro's President and Chief Executive Officer; and Deb Thomas, Hasbro's Chief Financial Officer, will review our financial results and discuss important factors impacting our performance. Following their prepared remarks, Brian and Deb will be happy to take your questions. Before we begin, please note 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. These forward-looking statements may include comments concerning our product and entertainment plans; anticipated product performance; business opportunities, plans and strategies; costs and cost savings initiatives; financial goals and expectations for our future financial performance. 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. Some of those factors are 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. You should review such factors together with any forward-looking statements made on today's call. We undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call. With that said, now I would like to introduce Brian Goldner. Brian?

[Brian D. Goldner:]

Thank you, Debbie. Good morning, everyone, and thank you for joining us today. In the third quarter, we grew revenues, operating profit and earnings per share. Year-to-date, revenues are flat, but we've grown our operating profit and earnings per share, excluding charges. We are entering the critical fourth quarter with innovative products, a full array of immersive brand experiences and comprehensive marketing programs with our retail partners and for our consumers globally. We have developed the capabilities and are executing our branded play blueprint to create shareholder value and to deliver growth and shareholder returns over the long term. Our focus on innovation is driving our brands. Many of our new initiatives are performing well. Nerf Rebelle, My Little Pony Equestria Girls, TELEPODS, Furby and Big Hugs Elmo are all off to a great start. In total, our franchise brands grew 19% in the third quarter, with gains in My Little Pony, Magic

[Deborah M. Thomas:]

Good morning, everyone. Through the first 3 quarters of the year, we continued to drive our business globally across the brand blueprint while improving profitability, maintaining a strong balance sheet and strategically deploying cash both into our business and returning it to shareholders. In the third quarter, revenues grew 2%, led by continued strong growth in our emerging markets and overall growth in the International segment. Excluding charges, operating profit increased 4% in the quarter and year-to-date. Our balance sheet is strong, and we continue to generate healthy cash flow. And we have taken and continue to take cost out of our business as our cost savings initiative and savings targets remain on track to deliver $100 million in savings by 2015. In the quarter, we recorded additional charges of $4.1 million, or $0.03 per share, associated with our cost savings initiatives. Pretax restructuring charges in the quarter were $3 million and partial pension settlement charges were $1.1 million. Our expectation for gross savings in 2013 continues to be $45 million to $48 million, with associated expected net savings of $13 million to $15 million for the full year prior to pension charges. The following review excludes pension and restructuring charges. A full breakdown of these charges by segment and by line item on the income statement was included in today's earnings release and slide presentation. Looking at our segment results for the quarter. The U.S. and Canada segment revenues and operating profit both declined 5%. Revenues in the Girls category increased and the Games category was flat, partially offsetting declines in the Boys and Preschool category revenues in the segment. As Brian discussed, the Boys category was the biggest factor driving year-over-year revenue declines. Additionally, inventory levels at our top 4 retailers were also down in the U.S., as retail partners continue to focus on tightly managing inventory. The U.S. and Canada segment reported a 5% decline in operating profit but a slight increase in operating profit margin to 20% versus 19.9% last year. On a year-to-date basis, revenues in the segment are down 3% but operating profit has increased 6% to 16.6% of revenues from 15.4% in 2012. The margin improvement is primarily due to the favorable mix of revenues, including continued growth in Magic

[Operator:]

[Operator Instructions] Our first question is from the line of Stephanie Wissink of Piper Jaffray.

[Stephanie S. Wissink:]

Deb, a question for you. Just step back and talk a little bit about the margin structure of the business as we look out into 2014, given that you have a heavier slate of partner brands. Could you just help us understand the dynamics between the gross and operating margins?

[Deborah M. Thomas:]

Certainly. As we stated in the past, Steph, we get a higher gross margin, which we define as just net sales plus cost of sales as we look at it, when we're in a heavily entertainment-driven year. With that, we also have a slightly higher royalty expense. All that being said, we said earlier this year, we expect to have margins this year similar to last year and the gross margin standpoint. So net with the higher royalty expense next year and a higher gross margin next year, we expect to have operating profit margins in similar ranges.

[Brian D. Goldner:]

In addition, Stephanie, if you look at the long term over '14, '15, beyond, obviously as we grow our Entertainment and Licensing business, that's categories at our company that have high gross margins and high operating profit margin. And of course, as we continue to grow our International business, and particularly our emerging market business, where we've made investments, as we drive more revenues in those areas, we're able to spread the cost over far more revenue and driving up the operating profit over time.

[Operator:]

Our next question is from the line of Jaime Katz of Morningstar.

[Jaime M. Katz:]

Can you guys talk a little bit more about the Games category and how you feel you've been making progress and where you sort of think that could go over the next year or 2?

[Brian D. Goldner:]

Well, we are adding a lot of new initiatives to Games. We're very happy with several of the new initiatives that have launched in the second and third quarter this year and continue to launch in the fourth quarter. As you know, Games are back-half and certainly fourth-quarter oriented. The early launch of TELEPODS in that platform is quite strong and we feel very good about the continued focus on Monopoly. We have great, new innovation across a number of consumer categories, including our Girls, Games business. We've also done and made some great strides in innovating around price points and ensuring that we have classic games out at great price points that allow for very strong consumption around the holiday periods as well. And of course, we're also getting great growth from Magic

[Jaime M. Katz:]

Okay. And then can you just comment on Latin America? I know your competitor was a little bit -- had a little bit slower growth than you guys had there. Was there something in particular that you saw was really moving down there or resonating with consumers?

[Brian D. Goldner:]

Our team down there is doing a tremendous job, both across South America, as well as in Mexico. We're seeing good gains in POS, where we have the data. We're seeing good gains in our own proprietary data around sell-in and sell-through. Our brands are resonating down there, lots of innovative promotion. We also have our programming on the air throughout the region in several markets, My Little Pony, Transformers Rescue Bots and Transformers Prime. So we are delivering the full blueprint to those regions and the results are speaking for themselves.

[Operator:]

Our next question comes from the line of Tim Conder with Wells Fargo.

[Timothy A. Conder:]

A couple of questions. On the POS, Brian, you're alluding to it here. But any additional color that you can give in the International markets? I know, again, the data is not the best, like you have in Western Europe and North America, but any additional colors by geography? And then, Brian or Deb, whoever wants to comment on it, your channel inventories are down in the U.S., you said, and especially at your big 4 retailers. Can you give us a little bit of direction of how much your POS was down and are your channel inventories a little bit more or less in line with that?

[Brian D. Goldner:]

Okay. So let me start with some of the markets around the world. We're seeing very strong growth, as you know, 22% growth in emerging markets. That includes very strong growth at that trend or above in places like Russia, as well as in China and Brazil. We're seeing very good growth in France, in Germany, Iberia, Norway, Italy, a number of European territories, as well as in Turkey. So we're getting very good growth in a number of places. And obviously, our brands are taking hold in the third and the fourth quarter as we get into the holidays. As we look at POS really, Tim, it's a focus on the decline in Boys. We're seeing increases in Games, Girls and Preschool year-to-date. And again, I think that where we have that data, we're particularly focused on giving you data from the U.S., where we have that data. Our inventories in the U.S. are down mid-teens overall in the U.S. Inventory has grown in concert with growth that you're seeing in revenues. So our inventories have lined up very well around the world, more inventory in Latin America and Asia-Pacific to support the growth in those businesses, more inventory in Russia and Brazil and China versus year ago, again, to support the growth in those businesses. And the U.S. business, appropriately, inventories are down. We have a really good quality of inventory, with lots of our new initiatives shipping late in the third quarter and into this fourth quarter.

[Timothy A. Conder:]

So Brian, you said inventories in the U.S. are down 15% collectively?

[Brian D. Goldner:]

Just mid-teens.

[Timothy A. Conder:]

Okay. And your comment on your POS there?

[Brian D. Goldner:]

Yes. The comment on the POS is if you look at year-to-date Games, Girls and Preschool, POS is up. Boys is down, and that's really what's driving our overall POS decline.

[Operator:]

Our next question is from the line of Mike Swartz of SunTrust.

[Michael A. Swartz:]

Just wanted to touch on gross margin. That came in much better than I think many had anticipated. And I just kind of wanted to walk through that. What were the major drivers? Could you maybe give us some more qualitative commentary around that?

[Deborah M. Thomas:]

Well, certainly. As we mentioned, we have our -- we had planned to have gross margins similar to last year. We talked about at the end of 2012, we expected to be able to maintain gross margins certainly at the level that they were at. So what you're seeing is actually a balance of pricing that was taken on carryover goods offsetting any increase in costs that we've incurred on those carryover goods, sufficient pricing on our new product, as well as getting the efficiencies of changing our U.S. business structure to give less incentive to retailers to take goods early and putting that more on the marketing and advertising line to our consumers. But you're also seeing efficiencies coming from our manufacturing business. So as we started our cost savings initiative, we said we'd start to realize some of the benefits this year, but we wouldn't realize 100% of our $100 million cost savings until 2015. But we're starting to see some of those manufacturing efficiencies come through in line. And you're starting to see some of the increased benefit of the growth in our Magic

[Michael A. Swartz:]

Great. I guess, just of the -- to maybe put it in easy terms, in the 200 basis point expansion year-over-year, I mean, was half of it kind of mix and the rest was kind of efficiencies in pricing? Is that the way to look at it? Or is there any way you can...

[Deborah M. Thomas:]

I would say, I mean, certainly less of it is pricing, more of it is mix. And to a lesser extent, you're starting to see the efficiencies come through.

[Brian D. Goldner:]

As we continue to pare back the number of SKUs but focusing on the SKU that matter the most, the franchise brands being up very strong in the teens, more of our business coming from our top 10 and top 15 brands, albeit with lots of new innovation and lots of SKUs and R&D around those brands, it allows us to focus in but also to reduce SKUs overall by focusing less on those tertiary SKUs we used to and therefore, getting efficiencies in development as well as manufacturing.

[Operator:]

Our next question comes from the line of Sean McGowan with Needham.

[Sean P. McGowan:]

A couple of questions related to product, if I can. In Preschool, I think with Elmo so strong, I was a little surprised to see that not doing better. And you did flag the Tonka outsourcing. Is there anything else that's declining in Preschool that would account for that?

[Brian D. Goldner:]

Yes. Actually, Sean, it's a good question. If you were to take out the Tonka decline or the transfer of Tonka from being our brand with revenues to royalty income, Preschool would have been up in the quarter.

[Sean P. McGowan:]

Up. That's very helpful. Okay.

[Brian D. Goldner:]

So I think that, that's a very simple way to look at it. And that's particularly focused, as you look at Preschool business, has continued to perform well globally. Obviously, Tonka is a little more oriented towards the U.S. historically and, therefore, has a bit more impact on the U.S. and Canada segment than our overall business.

[Sean P. McGowan:]

And when did Funrise take over the bigger Tonka stuff? Is that just lately?

[Brian D. Goldner:]

Well, it's a deal that was memorialized, I want to say, maybe around a year ago. But obviously, it takes several quarters to transition. And I think you're seeing this quarter really the first major impact as you get into the holidays between royalty income versus revenue.

[Sean P. McGowan:]

Okay. And how much was Magic up in the quarter year-over-year? You've been talking -- well, the last several quarters, you've talked about it being up over 20% or 25%.

[Brian D. Goldner:]

Yes. It's up 30%.

[Sean P. McGowan:]

Over 30%, okay. And what's driving -- can you be more specific on what's driving that Entertainment and Licensing revenue in the quarter?

[Brian D. Goldner:]

You're getting -- you continue to get, obviously, licensing income. You're getting payments for entertainment as we place those shows around the world. We have a bit of a contribution from Backflip in that category this quarter for the first time. Obviously, the cost of Backflip is a bit dilutive to the operating return, which you see is why in part the operating profit in that category declined in the quarter. But overall, we are -- long-term trend there is to grow Entertainment and Licensing through all the different income streams that we have there, which include licensing income, digital gaming income, Backflip and then television, and as well as our film participation.

[Sean P. McGowan:]

And remind us -- a couple of housekeeping kind of things. Remind us, is that Backflip going to stay in the E&L category and for the foreseeable future? I mean, it's games, but...

[Brian D. Goldner:]

Yes, it will. It will be counted in Entertainment and Licensing.

[Deborah M. Thomas:]

It will be in the Entertainment and Licensing segment. But you're correct, Sean, that the revenue will be in the Games category.

[Sean P. McGowan:]

Right, okay. And then just to clarify, you did say that Transformers and Star Wars revenue were up in the quarter?

[Brian D. Goldner:]

Yes. Transformers was up very nicely in the quarter, obviously very focused on our business around television support. And the initiatives around TV have really done what we said they would do, which is to drive our business. And we also have a great Generations product that serves our collector audience. But we are seeing the impact of TV and TV support globally content streamed for not only Transformers but also for, of course, My Little Pony and My Little Pony Equestria Girls. So again, really working for us. And then in Star Wars, that has mostly to do with some really innovative products the team put together that -- particularly something like the Black Series, which I don't know if you've seen or are familiar with, but really serving our collector fan base. And they've responded very strongly to those products.

[Operator:]

Our next question is coming from the line of Drew Crum with Stifel.

[Andrew E. Crum:]

Brian, a couple of questions on Magic

[Brian D. Goldner:]

No. So let's start with the quarter. Magic is much more release-driven, so it's much more like immersive games in other categories. If the team has introduced a new release, meaning a new array of cards around a new theme and additional characters or spells, that really is what drives the brand. The brand tends to be more flat by quarter. Obviously, based on the success of a new release, the team is just launching a release called Theros, and obviously off to a very good start relative to Ravnica, which was a year ago. And that's the kind of thing that drives that business much more so than seasonality. As the brand expands, you will see more of the brand at mass retail, but still the vast preponderance of the brand is still where we don't count POS and we don't have NPD data because, again, the hobby shop -- census of hobby shops and hobby shop playing has increased as well during this period. So effectively, we're still roughly 80% of the business, not counted within any of our data, albeit on an expanding pie.

[Andrew E. Crum:]

Got it. Okay, very helpful. And, Brian, just want to go back to -- Tim asked a question on point-of-sale. And I think you suggested that Games, Girls and Preschool were up year-to-date; Boys, down year-to-date. Is the same true in the quarter? And are you willing to quantify what that was in the quarter?

[Brian D. Goldner:]

Yes. So Girls and Preschool were up in the quarter. Games was flat, actually up very slightly in the quarter. And Girls and Preschool were up. Boys was down consistent with year-to-date. And again, I think what we're seeing is that's for Games, particularly non-Magic games, we know that they're more fourth-quarter loaded. And we can see the early takeaway for our new Games initiatives. We also had a new launch of Monopoly that happened a bit earlier, with Monopoly Empire happening earlier on. So again, I think for Games in terms of POS, it's a matter of that typical timing where you have new initiatives shipping in and POS that's in arrears. But overall, what we're seeing is very heartening in our Games, Girls and Preschool business.

[Andrew E. Crum:]

Okay. One last question. Deb, can you remind us what was paid in the third quarter in terms of royalties and what remains in 2013 as far as what you're paying to Disney?

[Deborah M. Thomas:]

Well, we've paid all that we're going to pay so far this year. And let me just pull that number out, Drew, and let you know what that one is.

[Andrew E. Crum:]

Is the $25 million payment to the Hub, does that flow in the fourth quarter? Or has that already been paid?

[Deborah M. Thomas:]

That payment is scheduled in November.

[Andrew E. Crum:]

Got it. Okay.

[Deborah M. Thomas:]

So over the trailing 12 months, we've paid $165 million to Disney. But that does include some of the payments that were scheduled for the -- under the older contract existing for the release of Iron Man and Wolverine.

[Operator:]

Our next question is coming from the line of Greg Badishkanian with Citigroup.

[Gregory R. Badishkanian:]

When you talk to your retail customers across the globe, are there other differences in terms of how they're approaching the holiday so far in terms of the U.S. versus International?

[Brian D. Goldner:]

Well, I think the approach the retailers are taking the holiday has everything to do with consumer perceptions of the market, consumer incomes, disposable income, economic growth. And of course, the introduction of a lot of our new brands and new initiatives to markets also has a bearing. So I would say consumer sentiment is somewhat in line with our results in that obviously in emerging markets, the emergence of the middle class, people enjoying brands, people enjoying brands now across multiple platforms and the fact that Hasbro is delivering our brand across all our different platforms consistent with the blueprint strategy is really working for us. And then by region, we're seeing enthusiasm in Latin America, in major areas of Europe, particularly in Russia and Turkey and Eastern Europe, as well as in Asia-Pacific. The 2 toughest areas around the world, I would say, from a consumer sentiment standpoint, continue to be Australia and the U.S. And we have worked through that with great, new innovative product. That's why we're seeing great growth in several of our categories and great consumer takeaway and enthusiasm for several of our categories. But we have also recognized that we are operating in a more challenging environment and particularly in those 2 areas.

[Gregory R. Badishkanian:]

So do you think inventory levels being down mid-teens is being appropriately positioned into the holiday in the U.S.? Or do you think that you're a little bit on the lower side? And if you are, is your -- would you like to go into next year with a much lower inventory level, which will help your gross margins? You need to discount less, promotions less than in first half of 2014 and it helps your sell-in as well?

[Brian D. Goldner:]

If you look at the U.S. business, this has really been a long-term strategy that we've activated. And I won't go back through every detail. But we all know that we've -- and the team has adopted a great new strategy that was about more just-in-time inventory, reducing overall inventory levels, following those brands that were selling the best, working with our retail partners to get more promotion and more impact at retail for the brands that matter the most. And we're seeing that being born out in inventory levels declining on average over time. We feel very strongly that we have the right inventory now going into the market in the third and fourth quarter. We have a lot of new initiatives that have begun to ship that we've highlighted but also some additional new games that come into the fourth quarter. So we feel very good that we have the opportunity to have a great holiday season, recognizing that the backdrop is a more challenging consumer environment. But Hasbro will get more than its fair share of the holiday season because we have the innovation, the content and the strategy that is resonating with consumers.

[Operator:]

Our next question is coming from the line of Michael Kelter with Goldman Sachs.

[Ivan Holman:]

This is Ivan sitting in for Michael. I was hoping that given solid results in Girls internationally, you could give us a little bit of color on the order of magnitude that came from Furby.

[Brian D. Goldner:]

Well, Furby is one of the drivers of the increase in our business year-on-year as is My Little Pony, the Pony business itself, call it, the core Pony business. The introduction of My Little Pony Equestria Girls is obviously contributing to our business. Easy-Bake has seen very strong gains year-on-year with the new Easy-Bake Oven, as well as the black and silver Easy-Bake Oven for everyone. So we're seeing great growth and strength across our Girls business across a number of known and new initiatives. And certainly, that's all been helpful. The other major launch there has been, of course, in the Nerf Rebelle line has been very, very positive and off to a very strong start. So, that all -- those all contributed to the quarter's result.

[Ivan Holman:]

Great. And with regards to Wizards, it seems that the growth continues at a strong clip, 30% plus. But can you give us a little bit of color around visibility going into 2014? What are the drivers here that specifically could help maintain that momentum into the year?

[Brian D. Goldner:]

Well, a couple of things that we've done throughout this year, and we've talked about it, we continue to invest, to build the capability of Magic Online. And that's really about allowing for more simultaneous play experiences. As you know, we allow -- give players the opportunity to play a great distance from one another and play in that virtual online space. We want to be able to host more gaming sessions. And that's what the team is working on, to expand the ability to host more simultaneous gaming sessions. That allows for people who have been more latent or lapsed users to get back into the brand. And then, of course, the team is also working on the analog business globally, which allows for lots of play sessions face-to-face in people's hometowns around the world, at hobby shops, tournaments that allow people to play more competitively. So there's an array of really hands-on, as well as virtual experiences, that we're developing for that brand. In many ways, Magic was the early indication for us how we're going to execute our Games business going forward and allowing people to play Magic in any form or format they want anytime and anywhere. And we're really delivering that. So I think as you go into '14, the ability to expand the simultaneous gaming sessions plus the continuation of great gaming releases and other elements within the blueprint are all beneficial to that brand over time. And we've seen that brand more than double in size over the last few years. And we feel the team still has great growth in its sights.

[Ivan Holman:]

Okay, great. And then maybe, Deb, one quick question on the cost side of things. It looks like SG&A is still running in a high-single-digit type of number despite all the cost cutting and the layoffs earlier in the year. We understand that the targets are $100 million, which, I guess, in 2015, may be closer to $50 million on a net basis. But given these investments, is there maybe potential for a year where SG&A would be flat or down? Or should we continue to expect it to grow at this pace?

[Deborah M. Thomas:]

Well, as we said, we always expected to have some level of inflation within those numbers. And what you're seeing we tried to point out in September that you're getting -- you're seeing compensation expense increase in that line item, as well as depreciation. You've got the acquisition of Backflip, so those expenses are going to go in as a dollar amount now. And our cost savings are also spread throughout the P&L in cost of sales, product development, in advertising area, as well as SD&A. So while we expect to and are still on target to hit our $100 million of cost savings by 2015, they're not all going to come in that line item and you do just have some offsetting expenses in that line item as well.

[Operator:]

Our next question is from the line of Greg Hessler of Bank of America.

[Gregory Hessler:]

Question was on the balance sheet. I think you guys, you have a note that's maturing in early 2014. On the last earnings call, you indicated that you were looking at your plans for that. Do have any updated plans for that? Just given the interest rate environment, do you think you'll come to market sooner rather than later to refinance that?

[Deborah M. Thomas:]

Well, our expectation, we said on our last earnings call and at our Investor Day, and I'll say again, and you're right, given the current environment, our expectation is that we'll refinance all -- most, if not all of that. So we are getting closer to that date as we speak.

[Gregory Hessler:]

And as you think about refinancing that, are you looking at shorter-term debt or longer-term? How should we be thinking about the tenor of that refinancing?

[Deborah M. Thomas:]

Well, I think it's really a mix as we look at our long-term capital deployment plans, what best fits into that plan.

[Operator:]

Our next question is from the line of Felicia Hendrix with Barclays.

[Felicia R. Hendrix:]

Brian, just to understand a little bit more about the successes that you're seeing internationally. I know that there's not POS data for a lot of the International regions. But for the ones that you do have it in, can you give us some color there?

[Brian D. Goldner:]

So we've seen, again, great POS gains where we have it, in the 3 categories where we've seen growth. And I've indicated, obviously, the Boys business, POS has been down. Boys' POS is really not down as far internationally as it had been domestically. And again, the 2 biggest brands driving the Boys comps lower year-on-year have been 2 initiatives within Marvel and Beyblade. Beyblade has had more of an impact and does have more of an impact year-over-year on the International markets. Marvel has had more of an impact year-over-year in the North American business, U.S. and Canada segment, just owing to its historical strengths and the fact that the International markets had some additional strength in Marvel more recently. And again, we are seeing very good growth within Boys in things like Transformers and in Star Wars, and then across Girls, Games and Preschool.

[Felicia R. Hendrix:]

Okay. And then just to kind of move to the next question. You had said in an earlier question -- I mean, you gave us -- you've given us several times the data, and you just gave it again, the point of sales in Girls, Games and Preschool. And you said that, I think, in -- you were seeing early takeaways from Games even though the POS is in arrears to the ship-in. Is that the same as Girls and Preschool?

[Brian D. Goldner:]

Exactly, same. You have new initiatives. And a good example, Equestria Girls is shipping into the -- in time for the fourth quarter. Obviously, you're not capturing all the current POS data. We're not reporting that because it's outside of the quarter. But obviously, it was early days in the third quarter but more significant in the fourth quarter for the ship-in versus the POS, as one example of many of those new initiatives. But we're trying to give you some indication that the early days of those shipping -- of those products shipping in, the takeaways is very good.

[Felicia R. Hendrix:]

Okay, and actually, that was a great segue because my next question was on Equestria Girls, believe it or not. And you said that it seems the retail takeaway there, the early retail takeaway is positive. Can you talk a little bit about maybe what your My Little Pony shelf space looks like and if you think you're kind of winning some share from other competing areas?

[Brian D. Goldner:]

Well, I think as you look overall at retail, what we're really seeing is that our retail shelf space is expanding behind several categories for the company, both in in-aisle as well as out of aisle and promotional space. So for Girls in Furby, Nerf Rebelle, My Little Pony, in Preschool with Play-Doh and Transformers Rescue Bots, obviously across Sesame Street and across Games, I think our shelf space has expanded very commensurate with the new initiatives that we partnered with retailers to present to consumers. That's true globally in combination with licensed products for several of those brands, where we have great content and licensees providing products in several categories. And they're doing that around the world as well. And as you would imagine, Boys year-on-year is down.

[Operator:]

Our final question is coming from the line of Gerrick Johnson with BMO Capital Markets.

[Gerrick L. Johnson:]

First, on program production amortization, you've talked about it briefly. But can you give us a more detailed explanation on why it's going up? And is there something -- is this something we should expect going forward?

[Deborah M. Thomas:]

Gerrick, no, it really has to do with what were the programs that were delivered in the quarter. As we said in the past when we deliver certain types of programming, it makes the amortization a bit higher. And we just happen to deliver more, in particular, game shows this quarter. And that's what was really driving it. Overall, we still expect our full year program production amortization to be kind of in line with the cash that we spend on a full year basis, that like $50 million to $60 million.

[Gerrick L. Johnson:]

Okay. And one more question. On the brand outsource or out-licensing program, Tonka and Tinkertoy and stuff like that, can you just tell us what brands are outsourced or licensed now that weren't last year? Because it does have a lot of impact on all different metrics, like sales, gross margin, inventory, et cetera.

[Brian D. Goldner:]

I think that both Lincoln Logs and Tinkertoys were outsourced last year, as well as this year. The one new brand that's outsourced as of this year, and particularly hits in the third and fourth quarter of this year as compared to a year ago, is Tonka. So I don't think that there's a -- is an exhaustive list. I think go-forward, we may have 1 or 2 other brands that we've identified, but they've not yet impacted our revenues. But it's not an exhaustive list but a focused, strategic list, where we think we have the right partners.

[Gerrick L. Johnson:]

Okay, great. And maybe one more. Magic, one concern out there is the natural cycle of toys, what goes back, comes down. But Magic is played by a different person, a different player, slightly older. Are there differences in how that cyclicality is in toys and games for an older player as compared to a younger one? Do you have studies on that? How long do you think we could see a growth trend in Magic perpetuating itself?

[Brian D. Goldner:]

Look, I think our team at Wizards of the Coast has done a very good job of continuing to bring great, new innovation, characters and, frankly, great storytelling to that brand. And they've done that across multiple different platforms. I think they're spending a lot of time listening to the player, listening to that audience. You're right, it is not a brand that's really in the toy space. It's a brand that is played by an older audience. And I think the team has really reflected that in their thought process of why we've invested in our online capabilities for more simultaneous play sessions globally. And the effort that we're making around the world to bring Magic

[Operator:]

I would now like to turn the floor back over to Debbie Hancock for closing comments.

[Debbie Hancock:]

Thank you to everyone for joining the call today. The replay will be available on our website in approximately 2 hours. Additionally, management's prepared remarks will be posted on our website following this call. Thank you, and have a good day.

[Operator:]

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