Hasbro Inc (HAS) — Q2 2017 Earnings Call Transcript

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 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 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. The Hasbro team executed another strong quarter. Story-led brands and innovative brand experiences drove double-digit revenue operating profit and earnings growth, brands that connect with global audiences and consumers in a meaningful way through story and informed by consumer insights are the brands that retailer support and they are the brands that our consumers engage in across our Brand Blueprint. Quarterly revenues grew across all major regions, including growth in many developed markets such as the U.S. Canada, France, Spain, Australia and Mexico. Emerging market revenues increased 7% led by growth in China and Russia. We also began operating from our new office in India. While most countries are performing well, the U.K. and Brazil are facing challenging macroeconomic issues impacting both consumers and retailers. This is having a near-term impact on our revenue and operating profit in the international segment but our full-year outlook for this segment is positive. On average, 90% of our operating profit in the international segment comes in the second half of the year and while we expect both countries to face challenges going forward, the rest of the markets have been performing well. Global point of sale increased in the low teens for the quarter and through the first six months of the year. North America and Europe POS also increased double-digits in the second quarter and first half. According to industry data through the month of May Hasbro remained the number one company across the G11 countries. On a reported basis Hasbro franchise brands revenues increased 21% with growth in TRANSFORMERS, MAGIC: THE GATHERING, NERF and MONOPOLY. Retailers and consumers continue to support Hasbro brands backed by stories and innovative cross-category merchandise programs. The TRANSFORMERS franchise performance was strong fueled by robust multi-screen entertainment. We are successfully executing our strategy to develop and leverage entertainment from multiple audiences and screens. This is emblematic of how we are executing across the Brand Blueprint. In total, global point of sale for the franchise is up significantly not only versus last year but also against 2014 the last movie year. In February we projected that MAGIC: THE GATHERING would see greater growth from the releases in the second and fourth quarters. MAGIC had a strong second quarter and the franchise was up in the first half. Importantly, the digital future of MAGIC: THE GATHERING is progressing and we look forward to sharing more with you in August at our Investor Day. NERF continued to grow behind strong increases from the launch of N-Strike-Elite with AccuStrike and continued growth in Modulus and Rival. Global POS trends remain strong. The all-new NERF NITRO had a limited launch in the quarter and the full rollout is planned for August. The MY LITTLE PONY franchise is well positioned for the October 6 release of MY LITTLE PONY the movie. Consumer engagement with the franchise remains high and global retailers are providing cross-category support for our innovative new line and expansive consumer products program. The combination of film, television, digital engagement and consumer products creates a deeply compelling 360-degree experience for both existing fans as well as fans in the making. Our partner brand portfolio is also benefitting from strong storytelling and innovation. In addition to Q2 revenue growth, global point of sale for the category is up both in the quarter and through the first six months of the year. STAR WARS is primed for a strong second half. Merchandise for STAR WARS: THE LAST JEDI hit shelves on Force Friday II September 1. We are very excited about our range of innovation that will debut at that time in advance of the theatrical release of the movie on December 15. The STAR WARS franchise remains a top property in the industry and we have an expansive line for the film, along with a well-received 40th-anniversary line and the all-new STAR WARS: Forces of Destiny celebrating the inspiring stories of iconic heroes from across the STAR WARS Universe. Hasbro’s Marvel portfolio is also leveraging compelling entertainment which drove higher revenues in the quarter. Hasbro’s lineup for both Marvel’s Guardians of the Galaxy: Volume 2 and Spider-Man: Homecoming are delivering strong performances. We will also introduce a line supporting the November 3 theatrical release of Thor: Ragnarok. MARVEL continues to raise the bar in storytelling, each year providing tremendous stories and character supporting a bigger, more global and more sustainable level of business. Consumer take away for Disney Princess was strong and revenues increased in the quarter engaging multi-platform entertainment coupled with new lines are driving this business. In 2017, Hasbro’s line has capitalized on new entertainment with product from Moana, Beauty and the Beast and in the fall will unveil new tangled items. In addition, this holiday we’ll be supporting the release of Olaf's Frozen Adventure, with a global line of fashion and small dolls that are true to the story. We are also supporting Disney Channel’s original movie, Descendants 2 which aired on July 21. DREAMWORKS' TROLLS continued to connect with consumers and added to our year-over-year growth. BEYBLADE is performing well and on track with our expectations for the first year of the property. With Europe and Latin America launching in the second half, we have strong retailer support and consumer take away. This includes an engaged digital audience with more than 100 million battles to date on the BEYBLADE app. Digital Play is contributing to the growth in brands and Gaming had another strong performance this quarter. Hasbro’s unique position in gaming is increasingly differentiating our brands and play experiences. We have a rich portfolio of game brands we are activating across platforms and we continue to develop gaming insights. We have and continue to build the capabilities in-house to create compelling gaming experiences for a multitude of consumer groups as well as an extensive network of partnerships across digital platforms. Global point of sale in gaming increased double digits in the quarter and we are launching several all-new games this fall at retail and digitally. Finally, in emerging brands, BABY ALIVE global POS increased double digits in the quarter and first half. Revenues were down slightly in the quarter primarily due to Brazil, but are up over 50% in the first half and we have a strong full-year outlook. In closing, our commitment to creating expansive brand experiences with strong stories and true innovation differentiates Hasbro’s diverse global portfolio across geographies, demographics and categories. We are well positioned to execute against tremendous stories and innovation for the full year 2017 and beyond. We look forward to seeing you on August 3rd at our Investor Day in Burbank, California. We will share our strategic approach to creating the world’s best player experiences and how we continue to leverage our Blueprint to create a modern, agile play and entertainment company. I will now turn the call over to Deb. Deb?

Thank you, Brian and good morning, everyone. The Hasbro team delivered a strong second quarter with double-digit revenue, operating profit and net earnings growth. Operating profit margin increased 60 basis points on higher revenues, favorable mix and expense leverage. The 30% growth in net earnings delivered $0.53 of earnings per share. As forecast, Hasbro’s adoption of the new accounting standard governing stock-based compensation contributed approximately $0.01 per share. Our outlook for both the third and fourth quarter is positive and we have strong consumer momentum heading into the second half. Given the timing of entertainment this year, the rapid growth of e-commerce and our global retailers focused on just-in-time inventory. Our expectation for quarterly revenue is a shift to later in the year. As a result, we believe the fourth quarter could represent a greater percentage of full-year revenue than historical norm and may be greater than the third quarter. For the second quarter, revenues in the U.S. and Canada segment increased 16%. Growth in franchise brand, Hasbro gaming, and partner brand revenues offset a decline in emerging brand. In total, U.S. and Canada point of sale increased double digits through the quarter in the first six months of the year. Retail inventory is of good quality. Operating profit in the U.S. and Canada segment increased 41% to $81.6 million or 16.5% of net revenue. The 290 basis point year-over-year improvement was the result of higher revenues, a favorable mix led by growth in MAGIC: THE GATHERING and expense leverage. International segment revenues increased 6% including a favorable $2.4 million impact from foreign exchange. Within the international segment franchise brand and Hasbro Gaming revenue grow offset a decline in partner brand and emerging brand revenues. Revenues increased across all three regions, Europe, Latin America, and Asia Pacific. Over the first six months, point of sale also increased in each region and grew in Europe and Asia Pacific in the second quarter. Latin America was down slightly as the macroeconomic environment in Brazil remains challenging. As Brian mentioned both the U.K. and Brazil are facing challenging economic conditions. We are seeing this impact both retailer and consumer behavior in both countries. Overall retailer inventories have good quality. As we’ve mentioned in past calls, there are some countries with excess inventory and we took steps to move through this inventory in the second quarter, most notably in Europe. Operating profit in the International segment declined 43% to $16.9 million or 4% of net revenues. The decrease was primarily the result of the higher level of close-outs and much less favorable hedges in Europe and lower revenues in the U.K., Germany, and Brazil. Historically, the first half of the year only represents a small percentage of the segment's full-year operating profit, due to seasonality of the business and the launch of geographic footprint and related fixed cost. The entertainment and licensing segment revenues declined 1%. Growth in digital gaming led by Backflip Studios was offset by a decline in entertainment-related revenues. Also, Media is contributing to the top line this year but was offset by the timing of film and television revenues versus last year. Consumer product revenues were essentially flat in the quarter. We have robust consumer product programs for both TRANSFORMERS and MY LITTLE PONY in the second half of the year. We generally record licensed revenue in the quarter after it is sold at retail by our licensing partner. Segment operating profit declined 18% on the small decline in revenues and investments in our global consumer product team were partially offset by an improvement at Backflip Studios. Overall, Hasbro's operating profit increased 18% and operating profit margin improved 60 basis points to 10.3% versus last year. Cost of sales increased 15% to 37.9% of revenues. The positive impact of the favorable product mix and growth in MAGIC: THE GATHERING was more than offset by the higher year-over-year level of closeouts I mentioned earlier. These closeout sales have a lower gross margin and are part of our normal annual activity but were more highly concentrated in the first half of this year compared to a year ago. This higher level of activity was aligned along marketing for entertainment windows including movie releases late in the second quarter and several occurring in the second half. In addition, as we said at Toy Fair, less favorable hedges also negatively impacted cost of sales. Royalty expense increased 14% to 8.1% of revenue. Higher royalty expense was the result of higher partner brand revenues but also a strong contribution from TRANSFORMERS: THE LAST KNIGHT movie product which carries a varied mixture of royalties. Our investment in product development remains flat year-over-year but declined as a percentage of revenues. We continue to invest in innovation at an industry-leading level. SG&A declined as a percent of sales to 26.4%. We generated leverage by higher levels of certain expenses including depreciation. We continue to expect full-year SG&A to be in line with 2016 excluding the fourth quarter 2016 impairment charge as a percent of revenue. Turning to our results below operating profit, other income was $11.1 million versus income of $6.1 million last year. Other income compared to last year was driven by higher interest income and our share of earnings from the Discovery Family Network. Both items were in line with the first quarter of 2017. The underlying tax rate was 24.7%, down from 26.1% last year and versus the 24.5% for the full year 2016. The quarter included an approximately $0.01 benefit from our adoption of the new accounting standard governing stock compensation. Diluted earnings per share for the quarter were $0.53. Hasbro was in a strong financial position including a healthy balance sheet and good cash generation. We generated $877.4 million in operating cash flow over the trailing 12-month period ending the quarter with $1.4 billion in cash. We remain committed to investing in our business to further our strategic account and drive long-term profitable growth of the company. During the quarter, we paid out $71.9 million for dividends and share repurchase with dividends representing the majority. We continue to target approximately $150 million in share repurchase this year and had approximately $309 million available in our authorization at quarter end. Receivables increased 20%, and days sales outstanding increased six days to 78 days. The increase was a result of the timing of revenues in the quarter as well as growth in revenues with longer terms and the impact of the closeouts mentioned earlier. Our accounts receivable are in good condition and collections continue to be strong. Inventories declined 3% to $558 million and are well positioned to support our business over the remainder of the year. We have a great deal of the year ahead of us and the Hasbro global teams are focused on executing against strong brand innovation, robust entertainment and the dynamic market and retail environment in which we are operating. Brian and I are now happy to take your questions.

Thanks, good morning everyone. Just a couple of follow-up questions, and thanks Deb and Brian for the details. I’m curious about Brazil or the U.K. if you can just help us diagnose a bit more about what’s happening in those markets and if it seems a bit more transitory how are you expecting those markets to develop in the back half. And then I think secondly, and this is admittedly I think an error on our part, but just understanding the entertainment and licensing-related revenue timing. I think Deb you mentioned there’s a deferral by a quarter or so when the revenue is received at retail and then you are collecting a royalty, but just remind us how we should think about the timing lag on when your major franchise brands, Ventar, and then the consumer products inbound licensing and the timing on that? Thank you.

Yes, good morning Steph. The U.K. business definitely has had some macroeconomic issues, you see it in the NPD data and our business has been relatively flat in the quarter from a POS standpoint. But overall, if you look across Europe, we have double-digit POS growth for both the quarter and year-to-date. So we really view the U.K. being a bit Brexit-focused. We have a little bit of our retail concern out there, but again I think it’s something the teams have worked through quite well and I don’t see it as a long-term issue. In Brazil similarly you have a macroeconomic situation, a little bit of political instability and consumer confidence that’s changed a bit, but still if you look at the emerging market growth for the quarter was about 7% year-to-date emerging market growth is 12% and so we are seeing some good growth across emerging markets. So I would say both of those are issues the teams are working through and I would expect that over time we’ll work through that. Again, same thing there where Latin America, the rest of Latin America has performed quite well and we would expect that market, the region overall to perform quite strongly.

Good morning, Steph. For entertainment and licensing, typically when we have consumer products sales we work with external third-party licensees who take that product and make the T-shirts and backpacks and all the great things that are sold around our brands. Their revenue at retail for example could be in the second quarter, they wouldn’t report that to us until early in the third quarter. So generally what we see with that is it’s about a quarter in arrears from when the sales actually occur at retail. With our entertainment this year with TRANSFORMERS coming out in June and we have the MY LITTLE PONY movie coming in October, we would expect to see some of that revenue in the fourth quarter for example for Pony, but more of it in the first quarter. So with consumer products you tend to see a little bit of a shift that revenue can be larger in the first quarter than it typically is in other segments because of that.

Thank you. Just one quick follow-up on the inventory, Deb. Are you feeling that the inventory closeout situation is essentially in the rearview mirror now we can look forward? Or is there anything that we should expect in the third quarter with respect to the international margins?

We have closeouts typically throughout the year, and as we said with all the entertainment coming midyear and later in the year we really took advantage of kind of cleaning that inventory up now, and making sure that as we headed into the heavy entertainment season which typically you may see a higher closeout level in the third quarter. It doesn’t have as big of an impact on margins just because of the size of the revenue and everything overall. So, we did take advantage of that. On a full-year basis, we think that we will not be unusual compared to a normal year, it's just really a timing shift.

Okay. Thanks. Good morning everyone.

Good morning.

Guys, there seems to be this narrative that movie properties didn’t perform to expectations during the quarter which seems to be at odds with your commentary on the TRANSFORMERS franchise. Could you address how you see the company position for the second half in terms of inventory levels and shelf space retailers intend to dedicate to your brands as it relates to entertainment?

Sure, entertainment continues to drive our business, Drew. And if you look at TRANSFORMERS, recognize that we now have entertainment across multiple screens and in fact our targeting and presenting stories to a infinite number of demographics around the brand, so certainly TRANSFORMERS: THE LAST KNIGHT products sold very well, our POS was very strong, the brand is up considerably. Then of course we also have the Robots in Disguise product that’s around the television. We have all of the universe product that’s focused on our fans, that is also selling incredibly well. And then of course preschool product, Rescue Bots product is also selling quite well. So we are seeing great sell-through around the brand, recognized that this is a brand that’s become increasingly global, increasingly international. We’re seeing great growth in places like China around the brand and around our international markets. So it continues to be one of the calling cards of the company. As you look at Spiderman, the performance was quite strong. MARVEL was up in the quarter. We continued to focus on the Spiderman brand, also Guardians of the Galaxy Vol 2 was quite strong and then of course you have Marvel Legends, so again we’ve talked about the fan economy and Marvel Legends has performed quite strongly, that's the fan-oriented product that we also see continuing very strongly throughout the year. And that will get into all of the electronic sell-through windows for those movies. And then in the fall of course we have a number of new initiatives and entertainment for the second half of the year including MY LITTLE PONY in October. We got the new STAR WARS movie. You have the Olaf’s Frozen Adventure for Disney Princess. And in fact if you look at the Disney Channel, so what we're seeing is increases in space around our brands, our retailer commitment at the top levels from the entertainment councils at those retailers and we believe that the full-year portends very good things. And as Deb mentioned, we cleaned up the market a bit around some of the inventories that were out from some products, so that we’d be in very good shape as we go toward the windows for Force Friday II September the 1st. You'll see MY LITTLE PONY product merchandising in August and September ahead of the movie, and then again, a new line of product going in time for Olaf’s Frozen Adventure from Princess as we track through all of the different entertainment windows.

Okay. Thanks for that color. And then separately, the EBIT margin looks like it’s down just 20 bps year-to-date, can you update us on your expectations for 2017 relative to last year? I think you had previously suggested operating profit margins would be lower versus the adjusted 16.4% you reported last year?

We continue to expect operating profit margins for the full-year to be up versus the adjusted number as reported number.

The reported number.

Yeah, the as reported number, sorry. So we continue to expect operating profit margins to expand versus as reported. If you look at EBITDA for the first quarter, it was actually up 19% year-to-date, it’s been up 16%, so we’re getting really good strong earnings growth in the business. And again, we expect operating profit margin expansion for the full-year.

Okay. Thanks guys.

Hi. Good morning. Thanks. Can we just go back to TRANSFORMERS for a moment Brian? Because you have mentioned in your comments the strength of Global POS and that is up significantly year-over-year, and against the 2014 movie? So, I’m just wondering if we could take those comments and translate those into absolute dollars. Would it be fair to assume that THE LAST KNIGHT could generate revenues higher than the 2014 movie, which I think you said at the time was kind of in line with the 2011 movie?

Yes, the way to look at TRANSFORMERS is that it symbolizes what we are achieving across the company. Over the past three years, we have built the digital capabilities to stream content and deliver it on various screens, and this capability is clearly visible in the TRANSFORMERS business. The overall brand is performing significantly better than it did in 2014. This improvement is partly due to the movie product outperforming the previous year's film, but we are also witnessing substantial growth in the TRANSFORMERS generations product aimed at fans, and the Robots in Disguise product associated with television. Television viewership remains robust, our streaming on Netflix is performing very well, and of course, the fan-focused stream product with machinima is thriving. I view this as an expansion of storytelling. The brand had a solid performance in 2014, and it continued to excel in 2015 and 2016, aligning closely with the movie performance for the brand.

Okay. So just to make sure, I understand like movie to movie it seems like the movies better and then you layer on kind of everything you do with your brand blueprint and how you kind of expand brands and then putting it off together, the franchise in general has grown, but the movie also seems better?

Yes, it is. The performance is good. Remember that the movie has continued to perform incredibly well globally outside the U.S., where I think we just surpassed $225 million in China. The movie has grossed more than $550 million so far. Additionally, with our entertainment digital engagement, we have seen a significant increase in points of sale compared to the prior movie year. This growth is coming from various new areas for us and capabilities that we've developed over the last three years.

Okay, great. And then, Deb this is probably a question for you. You guys touched a bit on what is going on in UK and Brazil, but just wondering specifically can you call out how much that impacted your performance in the quarter?

Well, we typically don’t call out separate countries, but what I can say is if you look at in our table both Europe overall and Latin America overall did grow revenue in the quarter. So whilst individual countries are impacting us. Overall as we look at the region and how we’re performing across the region, they did grow in the quarter.

Yes. I think the other thing to note in the operating profit is it's a small number. Typically our European profit 90% of it is around the second half of the year that has to do with the footprint that we run, size at geographies and the fixed expense that we have in the first half of the year. So I would view it as a small change that doesn't really portend anything on the full-year.

Okay. And then, just help me understand the partner brands declines internationally, if that again due to kind of timing or how much of that was related to U.K and Brazil?

That’s more about timing.

Okay.

It just has to do with coming off of a STAR WARS movie year entering into a new STAR WARS entertainment era and then MARVEL really hitting in the second quarter particularly Spiderman in the second quarter. So it’s really, I view as timings because MARVEL overall was up for the quarter.

Okay. So when we look at partner brands internationally for the second half that you shouldn’t see declines?

Well, I think that you have a lot contributing in partner brands in the second half. You have Princess which grew in the quarter and it has a lot of activity in the second half. You have MARVEL which has a tremendous amount of activity. You have the new STAR WARS movie and Force Friday II that sets on September 1st. So overall – well, of course we still have TROLLS which is contributing quite strongly year-to-date and we’re very excited about the full-year on TROLLS. BEYBLADE, some of you’ve asked about BEYBLADE timing. And that of course is really just entering both Europe and Latin America in the second half of this year, really hadn’t been in those markets. So I think all those elements will contribute to the second half of the year.

Great. Thanks for the help.

Thank you for taking my question. I have two questions for you. First, with online sales becoming increasingly important each year, I’m curious about your marketing approach for Amazon Prime Day. Did you do anything special for it, and how significant is that day for your business? Secondly, regarding STAR WARS, how do your orders and shipping plans compare to the movie from two years ago, The Force Awakens?

The Amazon Prime clearly is a very big day for them and it's a very fun day for us and opportunity to do lots of interesting and fun promotional elements to run our business. It was again a strong day for the company. Our overall online POS was very strong in the quarter, stronger than our overall POS and up more than 20%. We continue to see great growth in online and omni-channel not just from Amazon but with Wal-Mart, Target and Toys 'R' Us as well, very strong growth for several of those retailers. It's for us an opportunity to bring together content, commerce and innovation online and it's working quite well the way we’re executing around the story-led brands is quite strong for us. So overall, POS was up double digits in the teens for the company and even more strongly online. As you look at STAR WARS for the year, clearly if you go back in history I'd say you have STAR WARS movie years and STAR WARS non-movie years, these categories both contribute significantly, certainly the movie years more so and this is clearly lining up to be a very good STAR WARS movie year. Obviously, as we get into Force Friday we’ll know a lot more, but certainly there's nothing about our business so far this year that wouldn’t indicate a very strong STAR WARS movie this holiday and the strong toy sales for us.

As far as the timing questionnaire, one of things that we are seeing with the growth in online retailing and our retailers taking more just-in-time inventory, as Brian mentioned we’ll see more when we get to Force Friday II which is on September 1st of this year. But again that’s late in the third quarter and we think with everything that’s kind of coming together we may actually see a bigger fourth quarter than third quarter this year just really just timing and some of the patterns we're seeing right now.

Hi, thanks. Could you perhaps walk us through the puts and takes for gross margins? It seems like with $94 million of incremental revenue, gross margins were a bit soft. And I do understand entertainment licensing being down doesn’t help margins, but then you had strong MPG and overall franchise and gaming growth which are margin accretive versus partner brand. Could you just walk through some of the puts and takes there? Thank you.

Good morning, Arpiné. The main factor affecting our gross margin this quarter was the level of closeout sales, which generally have a lower gross margin. These sales also incur fewer advertising and associated costs, resulting in minimal promotion. This is why you see an increase in our operating profit percentage; it was impacted without significantly lowering it. The second major factor was unfavorable hedges related to inventory we purchased in the second quarter of this year compared to last year. We indicated at Toy Fair that this would affect our full-year gross margin, and we now expect it to decline slightly compared to the full-year 2016. These are the two main issues, which counterbalance the benefits from the positive product mix you mentioned earlier.

Okay. Thank you. And then a quick follow-up, Brian, you mentioned Disney Princess revenues were up in the quarter. Just wondering if it’s still up if you do year-to-date and move out for Easter shift, could you share how much, if that’s the case if it’s up year-to-date? Thanks.

Yes. Disney Princess has shown growth year-to-date, and it's also up for both the quarter and year-to-date. There has been a lot of strong entertainment supporting that brand, including Moana and the home video sales of Beauty and the Beast. So, it has been performing well, and we anticipate that the upcoming releases, including Olaf's Frozen Adventure, will further enhance our revenue from both the Princess and Frozen franchises for the full year.

Thank you. Just a couple of questions here. Deb, on FX given the recent weakening of the U.S. dollar year-to-date overall and the hedges that you have in place, do you see any changes in the back half of the year here as it relates to the FX guidance that you outlined at Toy Fair?

We have established our hedges to ensure predictability in our pricing. As a result of these hedges, we have set our pricing for the year, which helps our retailers maintain confidence in that pricing while also clarifying our gross margin. Looking ahead to the remainder of the year, last year we hedged around 74% of our total costs, and this year we are near 73%. While we may gain some advantages from the portions we haven't hedged, our main goal with hedging remains to safeguard the pricing we provide to our retailers.

Okay. So maybe a little bit but not a lot here, okay. Okay. And then on the profitability of the online versus the brick-and-mortar, I think you’ve said at Toy Fair that there was a little bit of difference but you anticipated that to narrow. Just maybe revisit that and a little color there? And then you’re shifting from Q3 into Q4 on the revenue side that you're looking to, should we expect a proportionate shift in profitability also?

Well, I think we’d expect a nominal shift in revenues between third and fourth quarter. We’re not suggesting that it’s seismic, but just a nominal shift as a result of all these entertainment initiatives that are happening toward the back half of the year and particularly in the fourth quarter as STAR WARS comes out in December. On online, what I’d said was that our cost of business was very similar. The difference is as we develop our expertise in online we have some initial costs over the first couple of years as we set ourselves up for future growth and that we would expect those costs over time to begin to diminish that has to do with the kind of packaging we use in the way we create master cartons in the way that we go to market, the kinds of content we’re creating. But over time we’ll amortize those startup or learning curve costs and that we would expect that to continue to be over time accretive to our business, but today comparable cost of business to Omni-channel or brick-and-mortar.

Okay. Okay. And then lastly I think if I’ve heard you correctly you called out not only the UK and Brazil, but a little bit of weakness in Germany. Just maybe a little bit more color there?

Really Germany on which really around the quarter and we don't expect that to continue for the full-year. It’s really the UK and Brazil that we’re seeing most of the economic issues.

Thanks for the question. I have a question on gaming. It looks like gaming revenue, with franchise brands was up $45 million in the quarter with non-franchise brands up only eight. So it seems like a lot of the growth is driven by MAGIC and MONOPOLY. I was wondering if you could just frame how much of that growth is simply from MAGIC cards at timing versus core MAGIC growth. And how much is coming from MONOPOLY? And then I have a few follow-up?

Yes. Overall the games category was up by 20% in the quarter and then if you look at – Hasbro Gaming was up 6%, but I think it’s important to note that in the second quarter globally our games POS was up 27%. So we are seeing a tremendous sell-through of our games business. Similarly in the U.S. our games POS was up quite considerably. So what we’re seeing is really a matter of games selling very well, shipments are little bit behind the sell-through, lot of new games introductions coming later in this quarter for the second half. Dungeons & Dragons is performing at a very high level. I think Dungeons & Dragons is back and the team has done some very expansive marketing around that. It's involved in e-sports and twitch gaming, new gaming launches coming throughout the year. And then, of course you also see our digital gaming business growing considerably. With TRANSFORMERS, EARTH WARS are performing quite well, DragonVale performing well, so Backflip Studios is really contributing as well on the quarter. So it’s both digital gaming, as well as face-to-face gaming performing well in the quarter, so that's both in the gaming segment and then overall performing quite well. MAGIC on a full-year basis, really the business continues to resonate with making a lot of progress in the MAGIC online and our Digital Next, we’re looking forward to showing you more in the Digital Next development at our Investor Day. But MAGIC online is performing very well, holding up quite well and you’re seeing more concurrent launches like Amonkhet was a concurrent launch between our card set as well as our online and we continue to connect with players. We’re seeing great new player engagement as well as conversion, continue to see the kinds of torment play and the e-sports play and viewership that really gives us good signals for that brand long-term.

Okay. Thanks. And I just have one on Princess and one on capital allocation. I think in the past you mentioned that Princess margins are below company average? Can you talk about your outlook for those margins as you continue to scale that brand and how long you think it will take to become run-rate margin? And then, on capital allocation...

Yes. I’m sorry, go ahead.

And then just on capital allocation. You reaffirm $150 million buybacks for the year, but didn’t buy back any shares in the quarter. Can you talk about how you are thinking about that and whether there were some upcoming uses of the cash alleged you do not buy any shares this quarter?

Yes. So if you look at Princess, we’d said from the beginning that investments would begin before the revenues spend and the investments continued in early days as we launch that brand we continue to invest in the brand and we do continue to see profit improvement over time. And we had said then and continue to reiterate that we’d see profit improve over a two to three-year period and begin to approach company average operating profit margins for our partner brands over that period. And that's still the case.

And as far as capital allocation, as we said we want to return access cash to shareholders and indeed most of it was through dividends this quarter and we repurchase shares subject to market conditions and available U.S. cash. We also put blackout windows in our close windows and our stock price had quite a bit of movement in this past quarter. So, we still have about $300 million left in our share repurchase authorization and still plan right now to repurchase $150 million on a full-year basis, it will just be more back half weighted at this point.

Hi. I think you’ve spent a lot of commentary or thought out there about the potential for the whole play industry in the U.S. to slow in growth because the growth has been pretty strong in the last few years. Do you have any thoughts on there in terms of what the drivers have been or whether those drivers can continue? And then, do you have any industry numbers to give for the quarter or year-to-date in terms of growth?

Our overall industry would grow just under about 4%, obviously our growth is outstripping that growth. In the U.S. the team has done a fantastic job with double-digit growth. We continue to see the opportunity to grow that business, continue to engage in it with the number of retailers continue to expand and stretch our channel management and through that channel management strategy we’re getting to new and differentiated retailers with different types of products and offerings. The online business continues to be disintermediary for us, for example, if you look at our online sales in the quarter particularly focused on U.S. you see very strong double-digit gains for all of our franchise brands and that's quite heartening to see that the MY LITTLE PONY and little Scratch up performing well as we’ve start to introduce new products where the audience can find those brands online at their liking. So, I’d say overall we continue to expect that the U.S. business, the North American business can grow. We’ve certainly seen that growth and expect that the retail calendar with entertainment continues to stretch to be more full-year calendar. And we have a number of initiatives for the second half of the year that set us up quite well for a full year, and also into 2018 we’re seeing a number of entertainment initiatives including our own that set us up for 2018 to be a very good year as well. So that's what I think about the U.S. business. I think you look at it our developed economies business in the first quarter grew 12% while emerging markets grew 7% and for the first half our developed countries business grew over 5% while emerging markets grew double-digit and so I would say that we’re continuing to see very good growth both in developed economies and emerging markets.

Hey, good morning. I have three here. First, consumer products you said it was flat. Can you tell us which of your franchise brands generated growth there and which saw declines?

In the quarter we’ve seen very good performance from MONOPOLY. We’ve seen good performance from TRANSFORMERS. We’ve seen good performance in MAGIC. I think Pony was off just a bit the quarter. And as we set up and line up the second half around the movie again on the full-year basis we think MY LITTLE PONY will perform quite strongly. And remember what Deb said earlier was that the consumer products royalty income comes in the quarter after the sales occur. So I think that a lot of what's going on the consumer products is just related to the timing.

Okay, understood. You mentioned timing of shipment of the reason for accounts receivable being up. What caused that?

Well, first of all, we’ve seen great growth in a set number of markets where we have longer dating in Latin America for example Mexico has seen great growth and the dating there is a bit longer.

Yes. In India we just started opening our own business in India. So it's really just a function of timing for us. Then we also talked about closeouts. Some of the sales as I mentioned there are a lower rate but they don't carry any allowances or things like that that may reduce receivables further. So it really is about timing for us this quarter. Inherently our receivables are in great shape, our collections are good and through last week we collected on 20% of our receivables. I think I looked at it Wednesday and we were already at that point. So we’re in good shape on receivables. It's really just about timing.

Okay. And you mentioned closeouts which is a nice segue into my final question. Can you give us your global North American POS at retail since that way the industry measures it?

So, our POS, global POS in the second quarter was up by 13% and year-to-date it's up about 14%. And then has had games POS globally was up by 27% and U.S. was even stronger 33% and you’re seeing double-digit growth across a number of categories. Where we have a breakdown franchise brands we have double-digit partner brands which was up strong single-digit and gaming as I mentioned was up, online sales I talked about being up more than 20%. And then, of course I also earlier in Europe that we saw the double-digit POS games and very strong gains in a number of markets. And as I mentioned that UK was the only place where the POS was flat and we’re holding our own in industry category that's down a bit.

And to be clear Brian, it’s all measured at retail or is that all at wholesale or where just?

That’s our measurement at wholesale, that’s what we have as POS.

Right. But the question was at retail, because that’s how the industry measures.

Yes we don’t get the retail data, we don’t get that retail data by all those markets, we get wholesale data by all those markets.

Thank you. I will now turn the floor back to Debbie Hancock for closing remarks. 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 Brian mentioned, we look forward to seeing you at our Investor Day on Thursday August 3rd in our West Coast offices in Burbank, California. And finally, Hasbro's third quarter earnings release is tentatively scheduled for Monday, October 23. Thank you.