Hasbro Inc (HAS) — Q2 2016 Earnings Call Transcript

Thank you and good morning everyone. Joining me this morning are Brian Goldner, Hasbro’s Chairman, President, 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 second 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. 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 other 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. 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?

Thank you, Debbie. Good morning everyone, and thank you for joining us today. Through the execution of our brand blueprint, the Hasbro team is building brands across toy and games, digital gaming, storytelling, entertainment, and consumer products. These efforts support our mission of creating the world’s best play experiences, and are delivering growth in our business. Second quarter revenues increased 10% and operating profit grew 12%. Each major segment grew revenues and operating profit. All four product categories increased revenues. Consumer takeaway continued to grow, and we are making investments to enhance our talent and capabilities around the brand blueprint. Last week we significantly enhanced our animation capabilities with the acquisition of Boulder Media. Boulder is a leading animation studio based in Dublin, Ireland. This 150 person team is creating award-winning content for networks around the world. We are very excited to have Boulder join Hasbro as we build a world-class team in storytelling and content creation. The acquisition is not expected to have material impact on our 2016 financial results, but strategically it reflects our mindset of investing in capabilities around the brand blueprint. Hasbro franchise brands increased 3% overall, or 5% absent FX, with double-digit growth from both NERF and PLAY-DOH. Revenues from our partner brands increased 15%, led by STAR WARS and the addition of DISNEY PRINCESS and DISNEY’S FROZEN. These brands and future launches, including the introduction of Furby Connect, Dreamworks Trolls, and products supporting the December release of Lucasfilm’s ROGUE 1, A STAR WARS Story, position us well heading into the fall and holiday season. For the quarter we grew across geographies, with 11% net revenue gains in both the U.S. and Canada segment and the international segment. Emerging market revenues increased 5% as reported, and 13% absent FX. Europe grew 23% in the quarter, including a 25% or greater increase from the U.K., France, Germany, Italy, Spain, and Russia. While the UK Brexit vote has created some near-term uncertainty and negatively impacted its currency, we have positive momentum in both the U.K. and in Europe heading into the second half of the year. To date, we have not seen a negative impact on our business. Overall, global point of sale increased 6% in the quarter, with growth in the girls, boys, and games categories. For the first 6 months of the year, POS is up 17%. According to industry and Hasbro estimates, with data available through May, we continued to gain share in nearly every available market. In total, we increased our share by approximately 1.2 percentage points. Our portfolio is well-positioned for the remainder of 2016 and future years. NERF and PLAY-DOH have continued to deliver strong growth. Several other Hasbro brands contributed to the gains, including Baby Alive, FurReal Friends, and Easy Bake, as well as several games brands, including Pie Face, YAHTZEE, and Bop-It. MY LITTLE PONY declined slightly in the quarter as we transition elements of our toy line. Over the past five years, content and innovation has propelled this brand in both games and toys and consumer products. MY LITTLE PONY: Friendship is Magic season 6 is currently airing around the world, and our fall product line features the core cast inspired by the locations they visit. MY LITTLE PONY Equestria Girls mini dolls have performed very well, exceeding our expectations and are helping offset difficult comparisons to a year ago. This leads us to next year, when October 6, 2017, MY LITTLE PONY the movie will hit theaters with an all-star cast and global distribution from Lionsgate. The film introduces new characters, new worlds, and new play experiences for the MY LITTLE PONY fan. TRANSFORMERS is also driving a significant business, supported by both television animation and theatrical films. The second season of TRANSFORMERS: Robots in Disguise is airing on Cartoon Network in the U.S. and on networks around the world. TRANSFORMERS’ story is further being developed by an all-new digital streaming series and partnership with Machinima, kicking off in August and aligned to when our toys and consumer products become available. TRANSFORMERS revenue is down versus last year, but we have a rich content and product line for the year and clearly a strong entertainment calendar and immersive stories and characters moving forward. TRANSFORMERS The Last Knight is slated for release by Paramount on June 23rd 2017, with two additional TRANSFORMERS films planned for 2018 and 2019. In addition, TRANSFORMERS Earth Wars, the first major Hasbro-branded game from Backflip Studios, was released on June 2nd. With over 3 million downloads in the first month, it quickly rose into the top 100 grossing games in the U.S. Through investment in our in-house capabilities and expansive industry-leading partnerships with the best gaming companies across platforms, Hasbro’s digital gaming presence continues to grow. With millions of daily active users, consumer spending on Hasbro-branded mobile games increased over 80% in the first half of 2016 versus the first half of last year. One example of strong year-over-year growth is our YAHTZEE with Buddies social dice game from Scopely. Our face-to-face gaming business had a very good quarter behind several brands and play patterns. Pie Face remains a top selling game in many markets, and point of sale is very strong. Pie Face Showdown, which brings the Pie Face gameplay to a whole new level, will be at select retailers in August and will be widely available in Q4. In addition, as we deliver gaming for all platforms, Pie Face is being developed as a standalone mobile game for play on Apple and Android devices, and for living room play on Apple TV. By responding quickly and bringing games to market in only a few months, we are capturing the excitement created by social media in our face-to-face gaming business. Hasbro’s newest game, identified through our social listening expertise, is Speak Out. Available this fall, the game captures the excitement around mouthpiece challenge videos. In addition, on July 22nd, MAGIC: THE GATHERING will launch Eldritch Moon, the second set within the Shadows of Innistrad. Shadows is off to a strong start, as global prerelease event attendance matched our previous record, and our launch weekend event had the highest global participation ever. Magic revenues grew in the international segment in the second quarter, with strong metrics in all regions. However, planned set release timing shifted this year and created uneven comparisons versus the first half of last year. Despite the shift, we expect 2016 to be the eighth straight year of revenue growth for MAGIC: THE GATHERING. Its popularity remains unmatched within the strategic trading card genre and we are successfully expanding global engagement and advancing the game into new formats including E-Sports and digital. Within Partner Brands, STAR WARS and DISNEY PRINCESS and DISNEY’S FROZEN represented the largest increases in the quarter. STAR WARS demand remains very strong. During the third quarter, we will begin shipping product in support of the December release of ROGUE 1. However, the third quarter last year marked the initial shipments for new STAR WARS products. DISNEY PRINCESS and FROZEN lines are selling very well, both in fashion dolls and the small doll line. We also have plans to launch two new properties this year, Elena of Avalor later this summer to support the new Disney animated series and Moana in the fourth quarter tied to the theatrical release. The transition to our DISNEY PRINCESS dolls product has been smooth overall and we look forward to a second half of the year as retailers should have transitioned out of previous inventory. This year we have several other great brands we are supporting including Yo-Kai Watch, which has been rolling out in markets globally and the upcoming DreamWorks release of TROLLS. Our TROLLS product will begin to hit retail in August ahead of the November 4 premiere. We have tremendous partnerships with great IP owners. We approach each of these brands as if they were our own, committing to them the best talent, resources, and innovative ideas in the industry. Looking ahead, we have positive momentum and a powerful line of brands and play experiences for the remainder of 2016 and clear line of sight to growth in future years. We have made tremendous progress in advancing our strategic capabilities to execute brands around the blueprint, but continue to prioritize further development of our skills and our culture toward creating the world’s best play experiences. Deb will speak in detail about our financial results, but we are very pleased with the strength of the first half of the year and remain focused on growing both revenues and profitability to enhance shareholder value over the long term. I’ll now turn the call over to Deb. Deb?

Thank you, Brian, and good morning, everyone. The Hasbro team continued to drive strong results for the second quarter, including double-digit revenue growth and margin expansion. We expanded our storytelling capabilities through our investment in Boulder Media and our balance sheet remains strong. We returned $179 million in cash to shareholders this year and remain committed to investing in our business, returning excess cash, and maintaining our investment-grade rating. For the second quarter 2016, revenues in the U.S. and Canada segment increased 11%. The boys, girls, and games categories posted revenue growth, more than offsetting a decline in the preschool category. Hasbro franchise brand revenues are flat. NERF, MONOPOLY, and PLAY-DOH increases were primarily offset by a decline in TRANSFORMERS. Partner brand revenues were up in the segment. U.S. point of sale increased in the high single digits for the quarter and more than 20% in the first half of the year. Retail inventory continued to be of very good quality. Operating profit in the U.S. and Canada segment increased 23% to $58 million, or 13.6% of net revenues, reflecting higher sales, only partially offset by higher expense levels as leverage improved in the quarter. International segment revenues grew 11%. Excluding the negative $17 million impact from foreign exchange, international segment revenues increased 15%. The boys, girls, and preschool categories posted growth in the quarter, while the games category was down slightly. Franchise brand revenues increased with growth in PLAY-DOH, NERF, MY LITTLE PONY, and MAGIC: THE GATHERING. Partner brand revenues also grew in the quarter. Operating profit in the segment increased 17% to $29.7 million, or 7.4% of net revenues. Similar to the U.S. and Canada segment, operating profit improved on higher revenues, which were only partially offset by increased expenses year-over-year. Through the first six months of the year, currency has negatively impacted revenues by $46.3 million. Given the current global economic environment, we anticipate additional negative foreign exchange impact for the second half of the year. However, we now expect it will be slightly below the $100 million we initially projected for the full year. We continue to believe approximately 15% to 20% of that impact will also affect operating profit. Entertainment and licensing segment revenues increased 9% with gains in consumer product licensing and digital gaming revenues. Segment operating profit increased 86% to $13.8 million, or 26.6% of revenues. Higher revenues coupled with lower intangible amortization and lower program production amortization drove the increase despite higher expenses associated with digital gaming launches from Backflip Studios. Overall, operating profit increased 12% and operating profit margin gained 20 basis points versus last year. The revenue increase from entertainment and licenses, franchise brands, and Partner Brands delivered a favorable product mix, which drove cost of sales to revenue down 40 basis points versus last year. Royalties increased to 7.9% of revenues, associated with continued strong growth in partner brands. In product development, we continue to invest at a higher level to drive innovative play and grow our brands. We also continue supporting our efforts with multi-faceted advertising campaigns. Intangible amortization declined, reflecting some of our digital gaming assets becoming fully amortized at the end of the second quarter of last year. Program production cost amortization was also down in the quarter. We continue to invest in both television and film content, but this quarter we’re amortizing fewer television programs than last year at this time. SG&A increased 12% in the quarter, primarily due to investments in brands, including MAGIC: THE GATHERING, marketing, and higher compensation expense. Through the first half of the year, operating profit margin has improved to 10% from 8.6% last year. This gain is being driven by the strength of our brands, solid execution from our global teams, and continuous strategic investment to drive growth over the long term. Turning to our results below operating profit for the quarter, other income was $6.1 million versus $2.3 million last year and reflected increased investment gains. The underlying tax rate was 26.1%, down from 27.1% last year and down slightly from 26.4% for the full year, 2015. Diluted earnings per share were $0.41 compared to $0.33 last year. Our balance sheet remains strong. Cash totaled $924 million at quarter end. We generated $585 million in cash over the past 12 months. During the second quarter, we returned $85.8 million to shareholders, $63.9 million in dividends, and $21.9 million in share repurchases. Receivables at quarter end were down slightly and DSO’s increased eight eights to 72 days. Absent the impact of foreign exchange, receivables increased approximately 3% versus the 12% revenue growth absent FX. The decline in DSOs was driven by the timing of revenue and collections in the quarter, as well as the bad debt provision we took in the first quarter. Overall, our accounts receivable remain in good condition, and collections continue to be strong. Inventories increased 42% versus last year. Adjusting for a negative foreign exchange impact, inventory increased 48%. Approximately 80% of the year-over-year increases in brands which are new to our portfolio or delivering high growth, including DISNEY PRINCESS and DISNEY’S FROZEN, STAR WARS, NERF, PLAY-DOH, and Yo-Kai Watch. The quality of our inventory is high, both at Hasbro and at retail, as we’re supporting new initiatives in addition to our planned growth. We enter the second half of the year in a very strong financial and market position. We have compelling brand initiatives and remain focused on delivering a very successful year. This strength of our business not only reflects the results of the investments we’ve made in our blueprint and teams, but more importantly allows us to continue on our path of strategically investing in our brands and capabilities to further drive long-term profitable growth for Hasbro and our shareholders. Brian and I are now happy to take your questions.

Hi, good morning, thank you. I have a bigger-picture question, but to just get this one out of the way, could you perhaps break down the $6 million of other income? Were there in FX one-time gains? I know that earnings from joint ventures are going to that line, but if you could just break down, because it was about $0.04 in EPS in the quarter. And then I have a follow-up. Thank you.

Sure, this is Deb, good morning, Arpine. The other income and expense line item includes lots of different things. There are no one-time FX gains in there. As a matter of fact, our impact from FX losses are fairly similar to what they were last quarter, in what we talked about versus last year, where currency is not quite moving in the same direction. We did have a gain from the sale of an investment in that line item and that was pretty much the only unusual thing that happened in the quarter.

Okay. Helpful. And then, Brian, you are probably at peak production currently. Could you perhaps talk about the visibility you have on the second half of this year in terms of how your largest customers are thinking about the toy category? And then I noticed, and thank you for that color, you broke down the inventory increase as a percentage of sales. It was highest over the past ten-plus years in terms of inventory and balance sheet as a percentage of sales. Maybe you could give a little bit of color on that.

Sure. If you look around the world, the industry is growing at quite a good rate. In most markets around the world, it’s growing from mid to high single digits. In a few markets, it’s growing as high as double digits, including Spain, Italy, Russia, and Mexico. Our business continues to grow around the world. We’ve gained market share in 10 of the 11 markets that we measure and have measurement in the quarter, and very strong market share gains. We’re also obviously seeing overall revenue growth above market growth with strong double-digit growth for the company. And as we look out to the second half of the year, we have great momentum in our business, great POS momentum as well as momentum across both franchise and Partner Brands. Our retailers have clearly made plans that involve many of our brands. In fact, if you look at just the quarter and look at revenue contributors to the quarter, seven of the top ten revenue contributors in the quarter were Hasbro brands and the remainder were our Partner Brands, so a great balanced portfolio of our owned and operated brands plus our Partner Brands. And both NERF and PLAY-DOH were the top two brands in terms of overall revenues. So you’re clearly seeing a number of strength in our product portfolio. They are in categories of business within the NPD categories that are also growing double digits, including action figures, dolls. Arts and Crafts is down a bit, but our business is up. And then outdoor sports and games. So, again, I say good visibility not only to the rest of the year, but as we go into 2017 and 2018 we have as good visibility as we have ever had for multi-year plans for growth.

That’s helpful. Thank you. Everyone is focused on STAR WARS, and I know you mentioned seven of your ten top brands are franchise brands. It seems like franchise brands came in around 3% for the quarter, partner brands grew five times that rate. As you look out for the full year, do you still expect franchise brands to grow at a higher rate versus partner brands?

Yeah, so I’m not going to guide on growth rates, one versus the other, but the one thing that did impact our franchise brands in the quarter was certainly TRANSFORMERS, and that is because a year ago, we were still selling plenty of TRANSFORMERS movie-related product, because we were coming off of movie four the prior summer, and the carryover was quite strong. Reassuringly, if you look at the product line that’s associated with our television series Robots in Disguise in the quarter, it was up significantly, but overall the brand was down, and that had an impact on our overall franchise brands growth rate. Despite, or if you took that out, obviously you would see stronger growth underlying for our franchise brands, particularly incredibly strong growth for NERF and PLAY-DOH.

Right. Double-digit, that’s helpful, and then could you talk about the cadence of STAR WARS shipments this year? We know that STAR WARS was over indexed last year, but you had the movie going into home entertainment in the first half. And there is some industry chatter about Force Friday being a month later this year. I don’t know if you can comment on that. You probably can’t comment on that. But are you still expecting STAR WARS sales roughly flat to last year’s, and the percentage of sort of total, what percentage you expect to come from Force Awakens versus Rogue One in terms of when we think about that 500 million? Thank you.

We still believe that the STAR WARS year will be approximately equal to last year. All signs indicate that the brand has started off strong for calendar year 2016. We are witnessing strong shipments and, importantly, strong consumer takeaways. Several of our product initiatives are performing exceptionally well, and Hasbro’s share of the STAR WARS market has also improved. If you examine the quarters, it's worth noting that last year, Force Friday was on September 4th, while the merchandising date for Rogue One products is approximately a month later, at the end of September. Overall, there have been some shifts quarter by quarter. In the initial quarters, we have seen significant growth compared to last year, but for the full year, we expect to reach around the $500 million we achieved last year.

Thank you very much.

Thank you for taking my question. I have a quick inquiry about YO-KAI WATCH, which seems to be gaining some traction in the U.S. I'm interested in your thoughts on the product launch, specifically how many markets it will be available in this year compared to last year, and how you view this property in terms of its multi-year potential.

Yeah, you know, you are right. The TV placement continues to expand across a number of markets. It’s in a handful of markets through 2016 and will roll out to more markets in 2017. It’s in Australia, European markets have just begun in May and will continue to roll out over the next month, and then the Latin American markets are really planned for late summer and early fall. We see it as a multi-year opportunity. It has been a multi-year strong brand in Asia, again we’re sort of in the early days, although it is certainly a contributor to the quarter to year-to-date.

Hi, good morning, and thank you. Thanks for all of the color, and your comments on DISNEY PRINCESS and FROZEN were nice to hear. Obviously you’re seeing strength there, just wondering how DISNEY PRINCESS and DISNEY FROZEN is selling versus your expectation.

DISNEY PRINCESS and FROZEN are performing very well. Our strategy for all 11 princesses has proven to be effective, and consumer response is strong. We are seeing significant improvements compared to previous products. We believe the markets have stabilized, and we anticipate clearer insights as we continue through the year. Additionally, our small dolls, known as Little Kingdom, for both PRINCESS and FROZEN are doing well, and we are making substantial progress with that brand. We expect to see ongoing improvements over time. We are already witnessing advancements in profitability; it may take some time, but we're building momentum in terms of shipments and, importantly, in sell-through. The response to our product offerings has been very positive.

So in line with kind of how your plans and expectations?

Actually, it is ahead of our plans.

Okay. Great. Regarding profitability, although you don't provide guidance, how should we approach that in our modeling?

Think about it as profitability approaching company average operating profit for a partner brand, which as you know is a bit lower than the company average over the next two years.

Okay. Great.

And just scale that out. As I said, our teams in development and creation and product development have done a very good job in identifying opportunities to continue to get our profitability on track toward our partner brand average over the next two years.

Super, and since you said it several times, I think it begs the question, how much is TRANSFORMERS down year-over-year?

TRANSFORMERS is down less than the boys’ average one would expect in a movie year. It’s down by, you know, around 20%, and again, it’s as we mix out of the movie-related product and we get into the TV-oriented product, so this quarter has that impact. The biggest impact to the boys’ category overall is JURASSIC PARK, and JURASSIC WORLD product is down significantly versus a year ago, and that also impacts our preschool lineup, because of Playskool Heroes, where we had preschool JURASSIC PARK product.

That’s helpful. Just a final one, in the slide deck, for your international business, it said in the second half POS was up, but in the little box for the second quarter it didn’t mention anything about POS for the second quarter. So I was wondering internationally if anything changed in the quarter.

Yeah, if you look at POS, in the quarter, POS was up globally 6%. In Europe POS was up high single digits, Latin America mid-single digits Asia Pacific double digits.

In the quarter?

In the quarter.

Okay. So nothing to read into there. Great. Thanks.

Thank you. Good morning, everyone.

Good morning.

Two questions for you Deb. The first is on the product mix. I know you cited that as favorable in the quarter, and Pony and Transformers were down, so should we expect that trend to continue through the second half and then start to reverse in the early part of 2017 as Transformers and Ponies come back online? The second question related to Boulder, I know it’s not expected to have a material impact this year, but as we look out over the next couple of years, there is a third-party revenue stream in that business. Is that going to flow through the entertainment and licensing line, or how should we think about that within the context of the P&L? Thank you.

Sure, as for product mix, we expect in the latter half of the year as Magic, and Brian talked about it earlier in his prepared remarks, our product mix will continue to be favorable throughout the year. As our MAGIC: THE GATHERING is now launching the new set in the second half of the year, that will continue to improve our product mix. And just as a reminder from a hedging standpoint, because I know people who will be thinking about that as well, we hedged about 76%, 75, 76% of our product costs last year. We have got about the same amount hedged this year as well, so as we think about the impact of FX, specifically on cost, we are in about the same place. And with respect to Boulder, we’re really excited to add the studio to part of our business. They create award-winning animation, and they’ll continue to do that for third-parties as we go forward. The revenue and expense associated with it will show up in our entertainment and licensing segments, and just a reminder, we did say it is a profitable studio. So that’s why we don’t expect it to have a material impact on our results, but more importantly with their good quality animation capability, it really adds to our opportunity to continue to create world class animation. The one thing I would mention in the quarter is we talked a little bit about the investments we make, and there was a small impact on an expense from professional fees in the quarter that will be non-recurring. That would have had our SG&A line.

Thank you.

Good morning, guys, thanks for taking my questions. I’m curious what is motivating consumers in preschool. I think you guys had mentioned that it was weak in North America, or maybe I misheard that. And how are you thinking about facilitating sales going forward maybe in that category specifically?

Yes, if you look at the preschool business, especially our Play-Doh line, it experienced significant double-digit growth. However, there was considerable weakness in Playskool Heroes, which is our preschool figures lineup. The Jurassic World segment saw a notable decline, much more than we typically observe for a boys’ action property. This trend also impacted our boys' business overall. So, the weakness was primarily in that area, while the growth was mainly in the Play-Doh segment.

Okay. For Boulder Media, how do you view that in relation to Allspark and the Discovery Family collaboration? Do you consider how to structure them to maximize synergies or best allocate opportunities within that content area?

Yeah, what we have been doing is running Hasbro Studios as a virtual studio. We bring on animators and professionals internally to help us to create the initial content, and then we’re rendering and developing our content around the world in geographies, eight or nine geographies around the world, where there’s an opportunity in great teams to develop content. They also, in many places, have tax advantages oriented toward creating animation in those geographies, and we’ll continue to work with those teams over the next period of time. We have lots of shows in production. We have our animated feature film in production. But we also see the opportunity to build the Boulder business and to scale, in fact if you look at the kind of animation they create, it’s world class and theatrical-quality animation. They are working for many different networks around the world and making shows for them. We see an opportunity as we are developing new brands as well as new stories within our franchise brands, an opportunity to expand Boulder’s capabilities and to continue to build our content capabilities as a company. So it’s a matter of balancing between different resources and continuing to look at how we scale Boulder’s operations, because they do provide incredible animation content at a great price point.

Thank you.

Thank you. And Brian, congrats to you and the whole team again for your ongoing execution here, it’s great. Just a couple here, if I may. I don’t want to belabor the inventory point, but a little more color if you could. I know you mentioned it was STAR WARS and it was the DISNEY PRINCESS, which all makes sense. Can you kind of bucket it? If you put those two in one bucket versus everything else of the percentage increase, how much those two collectively versus the other drove the increase?

Yeah, Tim, if you look at our overall inventory increase, 80% of the inventory increase were associated with best-selling brands as well as new business. So that would include princess and FROZEN. It would include increments in STAR WARS, NERF, PLAY-DOH, and several other brands that are selling quite well, in fact. Baby Alive is up significantly in the quarter, and for the year, we’re seeing growth in FURREAL FRIENDS. So there’s a number of brands that would be part of that. So we feel like the inventory is in very good shape. It’s just consistent with our forecast, and it’s well balanced between regions, about 40% of the incremental inventory in the quarter was up in the U.S. and 60% outside of the U.S. and international markets. But we feel like we are well positioned with inventory, and it’s associated with brands that are selling quite well, and/or are new to the company.

Okay, that's helpful. Regarding STAR WARS, you have provided good insight on your expectations for 2015 and 2016, indicating that the total revenues from STAR WARS will be fairly balanced. What can you share about ROGUE ONE being a spinoff, as it seems it may not perform as strongly? As we consider the latter part of this year and into next year, leading up to Episode Eight in late 2017, how should we think about the revenue balance between the main episodes and the spinoffs in terms of scale?

Yeah, we’re incredibly excited about ROGUE ONE, and from the materials that have been out there I think you can see by now, that it’s really around a classic story that everybody in the world knows of the Death Star and the plans around the Death Star. It’s got a lot of great classic play patterns in it. We’re very excited about the product opportunities and we’ll have a robust line that’s launching in late September. We see it as a great compliment to the Trilogy story that’s being told. And, as I said, for the full year, we expect STAR WARS to be similarly sized. That’s obviously really contributed to our Boys business as has NERF contributed to the Boys business, and SUPER SOAKER. I think the one headwind to think about for the remainder of the year certainly is JURASSIC WORLD that was down significantly and above the Boys action average for the second quarter. We still have about half of the revenues. If you compare it in a movie year, Jurassic does about $100 million. So we have about half of that to do to compare to 2015, and we have made the decision at the end of 2017 we will no longer handle JURASSIC PARK. We had a many-year relationship with Universal. We’ll no longer handle JURASSIC PARK because we were unable to arrive at a mutually beneficial financial arrangement on that brand. So, again, it’s about $100 million in a movie year, it was a significant Q2 headwind and it will be a bit of a headwind for Q’s 3 and 4. So as you think about the full year, and getting to your questions about how to think about gating around the Boys business and STAR WARS, I think that’s a factor to consider.

Okay. And then lastly, any color you could talk about the POKÉMON GO? It’s only been out there since the early part of July, but how that made headwind a little bit of maybe a brand or two within your portfolio? Or maybe even indirectly give a little bit of boost? Any color you could provide there?

Well, we have been developing our mobile gaming business for some time, and we love that mobile games are really coming to the floor and the ability to use all of the capabilities of the smartphone in engaging a mobile gaming player is great. So we’ve not seen any negative impact on our business, nor would we expect to. But we certainly believe in the mobile gaming genre; it’s a wonderful way to contribute to storytelling as well as to get monetization of games through a premium model. Our brands in the quarter performed at a very high level around mobile gaming, and we continue to like the category, and we’ll continue to build our business there. We love that mobile gaming is something that people are focused on.

Great. Thank you.

Good morning, two questions. First, Europe. What drove Europe to basically double the domestic growth for their shipments of certain categories that happened there in the second quarter that might not have happened in the first? And the second question is on BEYBLADE. When does that launch? What are your expectations for BEYBLADE? Thank you.

Europe has experienced significant growth in its business across various areas. We have a strong brand portfolio, and brands like MY LITTLE PONY have grown internationally, especially in Europe this quarter, even though they didn’t see growth in the U.S. We anticipate that MY LITTLE PONY will keep performing well. Our lineup is robust, featuring DISNEY PRINCESS, FROZEN, STAR WARS, alongside considerable growth in NERF and PLAY-DOH. PLAY-DOH is one of our more internationally recognized brands, making a notable impact in various regions. BEYBLADE is being introduced in different markets globally, and we see this as a strategic initiative for late 2016 that will have a more substantial impact in 2017.

Great. Thank you, Brian.

Okay, thanks. Good morning, everyone. Deb, you mentioned the operating profit margin in the first half was up 140 basis points. I think you said you expect gross margin for the year to be kind of flattish. How are you thinking about the EBIT margin for the second half? I know you don’t like to guide, but any swing factors that could move that either direction that we should be thinking about? And then just to follow up on the boys’ business Brian. No mention of Marvel in the quarter. How did that business perform for you in the quarter? Thanks.

Sure. I’ll take Marvel and let Deb take your other questions. Marvel performed at a very high level; it was one of our top brands for the quarter. It was off a bit versus a year ago, but much lower than any Boys average decline one would see in a non-movie year because they just have done such a great job in entertainment. So you just, again, a major contributor to the company in the quarter. They have great plans going forward. Obviously, CAPTAIN AMERICA and some of the Marvel legends product were great contributors and obviously, we’re down a bit versus AVENGERS in the year ago. But again, a very strong contributor overall and off just a bit. As I said, the biggest impact of the Boys category in the quarter as headwind was Jurassic.

As for our margins, we do not have any significant changes to our estimates from what we discussed at the toy fair last quarter. We anticipate that revenue will continue to create expense leverage. We will keep investing in the long-term growth of our business, which we have consistently done while maintaining our margins. The estimates we previously discussed remain largely the same, except for the foreign exchange impact, which we believe will be slightly below our expectations from February in terms of revenue percentage and points.

Okay. Thanks, guys.

Thank you.

Thank you, Rob, and thank you, everyone, for joining the call today. The replay will be available on our website in approximately two hours. Additionally, management’s prepared remarks will be posted on our website following this call. Our third quarter 2016 earnings release is tentatively scheduled for Monday, October 17th. Thank you.