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Edited Transcript of HAS earnings conference call or presentation 11-Feb-20 1:00pm GMT

Q4 2019 Hasbro Inc Earnings Call

PAWTUCKET Feb 12, 2020 (Thomson StreetEvents) -- Edited Transcript of Hasbro Inc earnings conference call or presentation Tuesday, February 11, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian D. Goldner

Hasbro, Inc. - Chairman & CEO

* Debbie Hancock

Hasbro, Inc. - SVP of IR

* Deborah M. Thomas

Hasbro, Inc. - Executive VP & CFO

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Conference Call Participants

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* Andrew Edward Crum

Stifel, Nicolaus & Company, Incorporated, Research Division - VP

* Arpine Kocharyan

UBS Investment Bank, Research Division - Director and Analyst

* Ashley Elizabeth Helgans

Jefferies LLC, Research Division - Equity Associate

* Bryan Daniel Goldberg

BofA Merrill Lynch, Research Division - Research Analyst

* Eric Owen Handler

MKM Partners LLC, Research Division - MD, Sector Head & Senior Analyst

* Felicia Rae Kantor Hendrix

Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst

* Jaime M. Katz

Morningstar Inc., Research Division - Equity Analyst

* Linda Ann Bolton-Weiser

D.A. Davidson & Co., Research Division - Senior Research Analyst

* Michael Ng

Goldman Sachs Group Inc., Research Division - Research Analyst

* Raymond Leonard Stochel

Consumer Edge Research, LLC - Analyst of Entertainment

* Tami Zakaria

JP Morgan Chase & Co, Research Division - Analyst

* Timothy Andrew Conder

Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to Hasbro's Fourth Quarter and Full Year 2019 Earnings Conference Call. (Operator Instructions) Today's conference is being recorded. (Operator Instructions)

At this time, I'd like to turn the call over to Ms. Debbie Hancock, Senior Vice President of Investor Relations. Please go ahead.

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Debbie Hancock, Hasbro, Inc. - SVP of IR [2]

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Thank you, and good morning, everyone. Joining me this morning are Brian Goldner, Hasbro's Chairman and Chief Executive Officer; and Deb Thomas, Hasbro's Chief Financial Officer.

Today, we will begin with Brian and Deb providing commentary on the company's performance, and then we will take your questions. Our earnings release and presentation slides for today's call are posted on our investor website.

The press release and presentation include information regarding non-GAAP adjustments and non-GAAP financial measures. Our call today will discuss certain adjusted measures, which exclude these non-GAAP adjustments. A reconciliation of GAAP to non-GAAP measures is included in the press release and presentation. Please note that whenever we discuss earnings per share or EPS, we are referring to earnings per diluted share.

Before we begin, I would like to remind you that during this call and the question-and-answer session that follows, members of Hasbro management may make forward-looking statements concerning management's expectations, goals, objectives and similar matters. There are many factors that could cause actual results or events to differ materially from the anticipated results or other expectations expressed in these forward-looking statements. These factors include those set forth in our annual report on Form 10-K, our most recent 10-Q, in today's press release and in our other public disclosures. We undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call.

I would now like to introduce Brian Goldner. Brian?

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Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [3]

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Thank you, Debbie. Good morning, everyone, and thank you for joining us today.

2019 was a pivotal year for Hasbro. We achieved our plan to profitably grow revenues, performing well in a dynamic retail and global trade environment. Hasbro revenues grew 5% absent FX and, adjusted operating profit increased 12%. We ended the year with good momentum in many markets and across brands, which is carried forward to the start of 2020.

We executed throughout the year as a more agile, modern and digitally driven company after redesigning our go-to-market strategy and commercial organization in 2018. The global teams delivered double-digit revenue and point-of-sale growth in pure-play e-com.

Our channel strategy drove growth for the year, including double-digit gains in the value channel, the fan channel and grocery and drug. We advanced our retail strategy and execution for online and omnichannel partners, ending with retail inventory of good quality and levels as well as product designed specifically for these growing channels.

We navigated the challenges and disruptions that arose in the global trade environment, implementing programs to meet revenue and margin goals during the important holiday season. We delivered compelling gaming experiences led by the work of our teams at Wizards of the Coast. Our positive results to date have us on plan to double Wizards of the Coast's revenues over 5 years from 2018 to 2023.

MAGIC: THE GATHERING revenues increased more than 30% in the year, behind double-digit growth in tabletop play and a strong first year for Magic: The Gathering Arena.

DUNGEONS & DRAGONS revenues grew for the sixth straight year, and we are meaningfully investing in both brands to drive engaging storytelling while developing new digital games with high-margin profitable growth longer term.

We look forward to sharing our 2020 new gaming plans for Magic and D&D on February 21.

MONOPOLY had double-digit revenue growth and grew in each region with new themes and relevant entertainment tie-ins. We advanced our consumer products licensing business, growing revenues double digits and expanding operating profit margin. We broadened our licensed brand portfolio and expanded our reach with original live events that drive consumer engagement.

The team is actively working to leverage eOne's brands across global multi-category licensing efforts and are already making great progress. We will share more about our plans at our upcoming investor meeting.

We leverage and created compelling entertainment to drive creativity across brands. Partner Brand portfolio revenues grew 24% for the full year and 50% in the fourth quarter. Disney's Frozen 2 and Descendants 3, Marvel's Avengers and Spider-Man franchises and Star Wars contributed to the gains for the year.

We added POWER RANGERS to our Hasbro-owned portfolio, executing the brand across our blueprint in consumer products, entertainment and digital gaming. 2020 will be our first full year globally, and we will offer new expressions across product, gaming story and experience.

TRANSFORMERS had its second-highest nonmovie year in its history, fueled by growth of (inaudible) new product and Bumblebee home entertainment.

And on December 30, we closed the acquisition of eOne, adding great global brands to our portfolio and tremendous expertise and capabilities across film, TV and music.

In addition to eOne's profitable business, we are poised to bring more Hasbro IP to audiences, fans and consumers globally while further developing Hasbro and eOne's cross-platform storytelling. I'm encouraged by the early days of our teams working together. And later this month, we will share more about our new stronger Hasbro.

For the full year, the global Hasbro team delivered on our plan reinventing our approach to commercial markets. Each major region grew revenues absent FX. The Entertainment, Licensing and Digital segment increased 22% to $435 million or 9% of revenues behind growth in Digital Gaming, Entertainment and Consumer Products.

The U.S. ended the year with strong fourth quarter performance, including high single-digit revenue growth. Amid disruption from tariff uncertainty, the U.S. team worked closely with our retailers to preserve orders at risk ahead of the List 4b tariff implementation, which ultimately did not go into effect.

Point-of-sale was positive for the quarter as well as for the full year absent Toys"R"Us. We increased our investment in supply chain and logistics during the year to ensure revenue continuity and to meet the increasing just-in-time inventory requirements of our retailers, which will remain a priority of our commercial and supply chain efforts going forward.

Our teams, both Hasbro and our third-party providers, executed at a high level in the fourth quarter to meet the changing needs of our evolving retailer base. We view these improvements as sustainable in 2020.

In Europe, we executed our goal to stabilize revenues and improve profit. Full year revenues grew 4%, absent FX, and operating profit increased more than 3x with room for future improvement. We enhanced our digital and online selling capabilities across the region to succeed in an environment where retailers carry less inventory and new channels are expanding.

Amazon is our largest and fastest-growing customer in the region. While the European region is not without its challenges, including continued retail disruption in several countries, which contributed to a softer toy and game market, we grew revenue in Germany, Russia and Iberia as well as a modest increase in the U.K. despite a down market. Point-of-sale declines moderated for the region during the fourth quarter, but POS was down, absent Toys"R"Us, for the full year. Several brand launches occurred later here or will happen in 2020 such as NERF Ultra and new PLAY-DOH offerings.

Latin America revenues were up slightly, absent FX, behind gains in Mexico, which offset disruptive unrest in several countries in the region.

Asia Pacific revenue increased 7%, absent FX, led by growth in Japan, China, India and Korea, where the fan economy is an important growth driver.

Our brand successes were led by innovation, new platforms and compelling stories. In addition to those I've already highlighted, PLAY-DOH revenues were up, driven by our popular Kitchen Creation play items and the rollout of 5 new compounds in the U.S., which will be distributed and marketed globally in 2020.

Hasbro's robust product line across price points for Disney's Frozen 2 had a tremendous holiday, and momentum continues into the year with the new home entertainment window beginning today. In partnership with The Walt Disney Company, the team created a highly innovative line to capture the imagination of our consumers, with strength across price points.

According to NPD, Hasbro's fourth quarter '19 sales across the G5 market were the highest in the brand's history in the product categories where we have rights.

Star Wars benefited from the year-end theatrical release of Star Wars: The Rise of Skywalker and the Mandalorian airing on Disney+. The Mandalorian Black Series figure was one of the top sellers in the fourth quarter, and Hasbro leveraged the global phenomenon of the child affectionately called Baby Yoda to drive preorder sales across several new products, which ship this year. Through new story and characters, young fans are increasingly engaging with Star Wars in major markets around the world.

Finally, Hasbro's product for the Marvel franchises, including the Avengers and Spider-Man, had an outstanding year behind an extremely robust entertainment site.

BEYBLADE leveraged new product, entertainment and digital integration for another year of revenue growth, with good momentum to start the year.

For NERF, a very successful Fortnite line and a promising start with NERF Ultra in the U.S. helped us gain share globally in the blasters category in 2019 according to NPD. Performance improved throughout the year, and the revenue and POS declines were modest in the fourth quarter. We will launch Ultra globally and have additional break-frame product launching this year. We believe in the growth opportunity for this brand across product and experiences.

Our total games category grew 6% for the year, fueled by growth in MAGIC: THE GATHERING and MONOPOLY. Higher revenues from DUNGEONS & DRAGONS and several classic game titles did not offset declines in our Hasbro Gaming portfolio, including the contribution of new game launches and difficult comparisons to the prior year PIE FACE and SPEAK OUT sales. The team acted nimbly, reorienting marketing and retail campaigns mid-year to gain incremental space at retail for the holiday and will continue to drive our original product and impactful marketing across the business.

In closing, on the strength and diversity of our portfolio, we set a plan to profitably grow last year, and we delivered on that plan, including revenue and operating profit gains for the full year and the fourth quarter.

As we look to 2020, we are excited about the brand and entertainment opportunities the team is executing to deliver continued revenue and profit improvement.

In early 2018, we set a target that set up certain things (inaudible) Hasbro's 2020 business without eOne could look much like 2017 in terms of revenue and operating profit margin. We've made tremendous progress and expect to continue to deliver profitable growth, but there are a few key factors which have changed over the period for Hasbro's business pre eOne. These include an approximate negative $160 million impact from foreign exchange, a decline in U.S. retail inventories alone of close to $200 million when you include the Toys"R"Us exit and the toy and game industry that has not yet returned to growth.

What will stand out in the market this year are excellent brands across gaming, toys and consumer products with innovative product lines and an increasing array of compelling stories.

With 2019's good performance and investments in future growth drivers as a backdrop, over the past year, we took major steps to create the Hasbro of the future. We have built profitable revenue streams across consumer products, including toys and games -- and gaming led by our efforts at Wizards of the Coast; and in entertainment, which we bolstered with the acquisition of eOne, and are making great progress to achieve the synergies we outlined around our combination.

On February 21, we'll speak in more detail about the opportunity for Hasbro, executing an evolved blueprint strategy. As we focus on locking the value of -- from the eOne acquisition and delevering over the coming years, we remain committed to investing in our business for growth and maintaining our dividend. The Board has declared our next quarterly dividend of $0.68 per share to be paid in May.

I would like to now turn the call over to Deb to speak to the financial performance and strength of Hasbro. Deb?

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Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [4]

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Thank you, Brian, and good morning, everyone. 2019 was a good and important year for Hasbro. We delivered on our goal of profitable growth. We managed through a challenging trade environment, and we undertook, financed, and at the beginning of fiscal 2020, closed the eOne acquisition. Our teams worked extremely hard to ensure we executed at a high level this holiday to drive fourth quarter and full year revenue and profit growth while also diversifying our supply chain and completing a major acquisition.

2019 revenues, excluding foreign exchange, increased 5%. Operating profit margin, adjusted for eOne acquisition-related expenses, increased to 14.2% and full year adjusted EPS was $4.08 per share.

We generated $653.1 million in operating cash flow during the year and returned $398 million to shareholders. In support of the eOne acquisition, during the fourth quarter, we raised $3.3 billion in net proceeds from our equity and debt offerings, which is included in our year-end cash balance of $4.6 billion. Excluding these financing activities, our year-end cash balance is in line with 2018.

During the first fiscal quarter of 2020, with the deal closed, we borrowed $1 billion of a term loan to round out our eOne financing and paid $3.8 billion for eOne shares as well as approximately $830 million to redeem their outstanding notes and revolving credit facility. We are so pleased that eOne is now part of our team.

Overall, Hasbro's revenue grew at actual and constant rates, and on an as-reported and adjusted basis, operating profit increased.

Looking at our segments, U.S. and Canada segment revenue grew 3% for the year, with growth in Partner and Emerging Brands. Underlying profit was essentially flat as we absorbed higher royalty costs in support of strong Partner Brand growth, higher intangible amortization associated with POWER RANGERS and higher shipping and warehousing costs from carrying more domestic inventory and managing increasingly just-in-time retail network.

Retail inventories were up slightly in the U.S. at year-end behind growth in Partner and Emerging Brand inventories.

International segment revenues grew 4% absent an unfavorable FX impact. Partner Brand revenue grew, and absent FX, Emerging Brands were up.

Following significant reductions in 2018 retail inventory levels, they remain in good shape internationally. Operating profit for this segment more than doubled as retail inventories were at much improved levels, allowances declined, operating cost came down and revenues grew.

Entertainment, Licensing and Digital segment revenues increased 22%, with growth in Digital Gaming led by Magic: The Gathering Arena and revenues from the Bumblebee film and in consumer products licensing.

Adjusted operating profit and profit margin declined as we invest in digital gaming initiatives, including Magic: The Gathering Arena and future MAGIC and DUNGEONS & DRAGONS digital game. In addition, we recorded lower streaming television revenues and had higher program amortization associated with the Bumblebee film.

Despite the near-term margin impact of investments, the segment margin of 22.9% remains meaningfully accretive to our corporate average.

Overall, cost of sales as a percentage of revenue improved 200 basis points for the year. We had forecasted and delivered improvement based on lower retail inventory in Europe, which drove a meaningful decline in allowances and closeouts. In addition, we benefited from favorable product mix from higher Entertainment, Licensing and Digital revenues, higher entertainment-driven toy and game revenues, such as Frozen 2, Marvel and Star Wars, and a greater mix of MAGIC: THE GATHERING. This was partially offset by higher cost to bring inventory into the U.S.

As we discussed last quarter, royalty expense grew to 8.8% of revenues for the year on higher Partner Brand revenues, including strong Frozen 2 and Star Wars shipments in the fourth quarter. Advertising declined $26 million for the year, including a decrease of $46 million in the fourth quarter, which was in part due to higher entertainment-backed revenues which require lower advertising investments. When viewed together, our royalty and advertising expense in 2019 increased 30 basis points from prior year. We are also driving greater efficiency in our advertising, reaching more consumers through lower cost, more effective platforms, including social media.

Program production amortization increased as expected, coming in at 1.8% of full year revenues, reflecting the revenue timing and amortization of Transformers: Bumblebee. SG&A declined to 21.6% of revenues, excluding eOne transaction expenses. The benefit of our cost-saving initiatives and favorable foreign exchange were partly offset by higher investments in digital gaming, increased compensation expense and additional warehousing costs. Our team did a good job prioritizing and managing expenses in the fourth quarter.

Below operating profit, interest expense reflected $10.7 million from bonds issued to fund the eOne acquisition. Reflecting this financing, for 2020, we estimate interest expense to be approximately $210 million.

2019 other income includes a $111 million settlement charge associated with the termination of our U.S. pension plan earlier in the year.

There are also several items associated with the eOne acquisition. These include a full year gain of $114 million associated with hedging the British pound purchase price. In the fourth quarter, this equaled to gain of $140 million pretax. The fourth quarter and full year also included $20.6 million of financing transaction fees primarily associated with the bridge facility. With the financing complete, the bridge facility has been terminated.

Excluding these eOne acquisition-related items, adjusted other income totaled $60.4 million for 2019 and $23.3 million for the fourth quarter, which includes approximately $6 million of interest income associated with higher cash balances ahead of the closing.

Our underlying adjusted tax rate, absent discrete events, was 17% compared to an underlying 18.3% last year. Based on our customers' reaction depending tariffs, we had forecasted a tax rate to be at the high end of our previously guided range. However, the teams worked with retailers during the quarter to preserve direct import orders from China, and ultimately, List 4B tariffs were not implemented.

As a result, the buying practices were closer to historic levels than expected and direct import orders declined only 3 percentage points of the total. That trend, along with sales exceeding expectations in certain foreign jurisdictions, changed our mix of income and resulted in a more favorable tax rate. The 12.4% GAAP effective tax rate includes the favorable tax impact of the pension termination as well as certain items associated with the eOne transaction.

Moving to the balance sheet. Given the fourth quarter entertainment releases and the later timing of direct import orders due to tariff uncertainty, our shipments and collections came later in the year. As a result, receivables increased 19%, and days sales outstanding increased 12 days to 90 days. The impact of FX on the receivables balance was less than $1 million. Receivables are of good quality. And by the end of January, we collected nearly $550 million of the year-end balance.

Our teams navigated the past 12 months extremely well as we executed major brand campaigns, met the needs of a changing retail landscape, dealt with a disruptive trade environment and completed a major acquisition. Our combined organization is becoming one. We're about 6 weeks into our work together with eOne, and we look forward to sharing more with you regarding our view to 2020 and beyond at Toy Fair.

In closing, I'd like to comment on the coronavirus. Our thoughts are with those impacted by the outbreak. There is disruption to our supply chain and commercial operations in China as travel is limited and employees and factory workers have been delayed in returning to work. The impact to our business to date is small. But it's challenging to quantify the potential magnitude at this time as it will depend on how long it takes to contain the outbreak.

If it takes a significant period of time to control, there could be a larger impact on our business. We are rescheduling any China-based direct import shipments and production missed during the past week and we're monitoring the situation closely to determine how quickly our manufacturing partners can resume full production levels and catch up on the missed activity.

This is a lower revenue and factory production period for us, and we're working to protect the flow of goods. We have a cross-functional team working to identify and mitigate the impact to Hasbro. We've identified priority items with launch dates in the coming weeks and months as part of our contingency plans, and we'll work to recapture any lost productivity in the near-term to meet demand throughout the year.

Now Brian and I are happy to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question is from the line of Stephanie Wissink with Jefferies.

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Ashley Elizabeth Helgans, Jefferies LLC, Research Division - Equity Associate [2]

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

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Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [3]

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Sure. We did see very strong growth for MAGIC: THE GATHERING and increased growth for DUNGEONS & DRAGONS. And for Magic, it really was growth in 2 fronts. First, our tabletop game grew substantially, and that brings a lot of new players and unique players into the game. So we saw growth in unique players, and we also saw growth for all the events. And our revenue for tabletop was up. And of course, in the fourth quarter, it was down, as we had described, because of the release cadence and the release timing. We've seen a lot of engagement across an array of new offerings there.

For Magic: The Gathering Arena, we saw great growth for the brand, that aspect of the brand throughout the year. Magic: Arena was ranked as a top e-sports brand, #7. It was also 1 of the top 10 reviewed games from Metacritic. We've seen over 1.8 billion games played thus far, 72% growth in new players for the year. And on average, Magic players -- Arena players continue to spend about 8 hours a week.

We're also seeing incredible streaming metrics, 43% growth in viewer hours year-to-year. We're seeing over 70,000 streamers since the open beta, and it continues to be a top 20 game on Twitch week-to-week.

In January, just a few weeks ago, we began the launch of Magic: The Gathering Arena on the Epic Game Store. So that gives us access to 100 million PC gamers, and we're just ramping up the marketing to bring in more Magic players as we go forward.

We're very excited about some other new initiatives that will continue to drive our partnership with Tencent. We'll also talk more about our migration to mobile, and Chris will outline our 2020 plans on the 21st.

In addition, for D&D, we did see our sixth straight year of growth. We are seeing about 150 million hours of content viewed on Twitch and YouTube, which is up nearly 50% year-on-year. In the first half of 2020, we're seeing a lot of new initiatives coming for the brand. But again, I'm going to let Chris walk us through at our Analyst Day our plans for Digital Gaming, which are, again, substantial for D&D that begins in 2020.

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Operator [4]

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The next question is from the line of Arpine Kocharyan with UBS.

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Arpine Kocharyan, UBS Investment Bank, Research Division - Director and Analyst [5]

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

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Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [6]

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Arpine, thanks for the question. To date, we're only 6 weeks into operating with eOne, and we're still in the process of finalizing our combined budgets. But I can say that nothing has changed what we estimated from synergy impacts so far for what we've seen. We'll give more color on what the 2 businesses look like together in -- on the 21st as best we can. As I said, we're only 6 weeks through. But Brian, do you want to talk about our brands together?

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Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [7]

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Sure, it's great now to have Hasbro and eOne come together as a company. Together, we'll focus in 3 major areas that we'll continue to talk about. Certainly, entertainment and storytelling and their profitable entertainment business and driving more Hasbro IP across storytelling platforms, our gaming business and then consumer products, including toys and games.

We continue to see the top growth drivers of the toy and game industry all being associated with both storytelling as well as engagement across gaming and storytelling. So we also see, of course, that streaming is going to play an increasingly important role. We can talk more about that.

So immediately, we add Peppa Pig, PJ Masks and Ricky Zoom to our portfolio. The team's done a great job there, and we expect additional growth. We're also beginning to partner together between eOne and Hasbro teams to reimagine brands like MY LITTLE PONY. As you know, in 2019, it was our ninth season, final season for the current MY LITTLE PONY TV Series. And now the team's taking up the mantle in MY LITTLE PONY in earnest for our plans in 2021 and beyond that would include our animated feature film as well as new television for that brand. Such great opportunities as things begun. And we won't talk about all those initiatives today, but certainly, over the next several weeks and months, you will see more Hasbro IP come to the market via incredible talent and expertise at eOne.

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Operator [8]

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

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Andrew Edward Crum, Stifel, Nicolaus & Company, Incorporated, Research Division - VP [9]

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

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Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [10]

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

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Operator [11]

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

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Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [12]

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So Brian, I just wanted to get back to your comments about 2020 compared to 2017, I'm interpreting your comments that given the headwinds, it may take a further year to get to those 2017 metrics. So just wanted to see if you could comment on that.

And then my follow-up is on some of the POS details that you gave in your prepared remarks for the fourth quarter. I think you gave some of the business lines but not all, so I was wondering if you could give us overall POS and then just review them by revenue line. And I'm also wondering how Ricky Zoom has been doing since launch.

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Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [13]

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Sure. First and foremost, we talked about our plans for 2020, now include eOne. And so of course, we immediately add brands like Peppa Pig, PJ Masks and Ricky Zoom. So the comparisons that we had, had historically now are no longer relevant as we sort of step forward and beyond what was our expectation for 2020 to look somewhat like 2017.

Having said that, in the underlying toy industry, we've noted a few of the headwinds. We do expect to continue to grow profitably that underlying Hasbro business in revenues and to continue to grow our operating margin over time as we continue to make progress around gaming and our Consumer Products business, Entertainment, Licensing and Digital.

And so I'd say that we're now moving ahead into 2020 as we operate as one company with Hasbro and eOne. As we look out over the time horizon, clearly, we believe the substantial growth opportunity over the next several years through 2022, as we've outlined for you as part of the acquisition.

The POS, we talked a bit about on the call. Clearly, North America saw some growth globally. For the full year POS was down literally low single digits. And then again, as we look at the business, we see some really substantial growth around -- for the full year around our toy business. We see, obviously, substantial growth around our partner business and brands.

I'd also say we wanted to look at year-to-date because we have seen some really good momentum year-to-date in the U.S. Our POS year-to-date is up 10%. And in Europe, our POS is up as well. So again, as we moderated those declines in the fourth quarter, we're seeing gains in Europe beginning for the first quarter of 2020. And again, it was a lead holiday. We saw the momentum build around the holidays, and we saw a very good performance from several of our brands, recognizing that brands like MAGIC: THE GATHERING and TRANSFORMERS faced year-on-year headwinds: TRANSFORMERS from the fact that there had been a movie the prior year; and Magic, we talked about the release cadence, how the fourth quarter of '19 would be lower than the prior year given the release cadence of the brand over that period.

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Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [14]

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And Ricky Zoom?

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Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [15]

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

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Operator [16]

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

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Jaime M. Katz, Morningstar Inc., Research Division - Equity Analyst [17]

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

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Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [18]

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

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Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [19]

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In terms of Disney, we've had a very strong year together and very successful partnership that continues in 2019 and into 2020.

First and foremost, the partnership with Disney on Frozen 2 was amazing. We are -- Hasbro is the leading company on the Frozen property thus far, and we expect to continue to see strong results in 2020. The home entertainment window is going on now. We've got new innovative products from our teams. We're also driving our Princess business. Mulan comes in March, and we have Raya the Last Dragon that comes in the fall. We're also seeing great impact from Disney+. The fact that the library of Disney Princess films are now available together only gives us more opportunity to continue to work with Disney to bring to life those characters in product. And we see a major, of course, expansion of Disney+ across Europe in 2020, which benefits us. In the holidays, the castle was among the top sellers, the Arendelle castle for Frozen.

For Marvel, we had a tremendous year around Avengers as well as with Spider-Man. We also focused on the fan economy with the Marvel 80th product, 80th-year product. So again, it's a very strong partnership.

And for Star Wars, we saw great results around Star Wars both from Triple Force Friday in support of the Rise of Skywalker as well as for the Mandalorian. We're incredibly excited that the Mandalorian season 2 will come to Disney+ this fall. We're also seeing -- and we'll have great support around the Clone Wars, which is the seventh season, which comes to Disney+ in the spring. And again, we continue to drive and support the brand.

I give you all that as backdrop for how we work in such a substantial way with The Walt Disney Company. We continue to engage with them. And while we take nothing for granted, we believe we will continue to be a partner of choice across these properties into this year.

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Operator [20]

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Next question is from the line of Tami Zakaria with JPMorgan.

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Tami Zakaria, JP Morgan Chase & Co, Research Division - Analyst [21]

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

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Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [22]

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

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Tami Zakaria, JP Morgan Chase & Co, Research Division - Analyst [23]

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Got it. That's helpful. And then your Entertainment, Digital and Licensing revenues were up an impressive 22% for the year. So could you provide some color on the mix of this growth coming from Bumblebee versus Magic: The Gathering Arena?

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Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [24]

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So we saw growth across each of that discrete parts of the Entertainment, Licensing and Digital business. Our Consumer Products Licensing business is up. Our Digital Gaming business was up with a number of our digital games with partners performing incredibly well, including YAHTZEE with Buddies!, which is a top 50 game on the Apple App Store; a new MONOPOLY game launching from Marmalade Studios that launched in December and charted as #1 as it launched. Our POWER RANGERS digital games continue to perform well. And in first quarter 2020, we have a G.I. Joe game in support of the brand called G.I. Joe: War on Cobra that launches in Q1 as well as a Scrabble Go game that we'll launch from Scopely in Q1. So Digital Gaming grew. Our Entertainment business grew, and our Wizards digital business all grew in 2019.

Arena grew throughout the year. Arena grew in the fourth quarter, offset by a bit of decline in the legacy MAGIC: THE GATHERING online business. But overall, Arena had a fantastic year, and we expect continued progress as I outlined the expansion of the brand across multiple platforms for 2020.

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Operator [25]

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

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Eric Owen Handler, MKM Partners LLC, Research Division - MD, Sector Head & Senior Analyst [26]

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Yes. Two things. First, can you talk a little bit about, for modeling purposes, the seasonality associated with eOne? I know you're going to talk a little bit about this during the Analyst Meeting, but for modeling purposes now, wondering if you could talk a little bit about this.

And then also you've alluded in the past about this sort of being an inflection year for POWER RANGERS. I wonder if you could go into some details about POWER RANGERS and some of the products that you've got for this year.

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Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [27]

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

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Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [28]

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And for POWER RANGERS, it was a great year on Beast Morphers with a strong year 1. Recognize that the bulk of our business really didn't begin until the second quarter in 2019. In 2020, we have the benefit of the full year. And as we look at our ratings on Nickelodeon, we are #1 in our time slot for kids 2 to 11. Season 2 of Beast Morphers launches Q1 in North America, and it will roll out globally. We're very excited about the brand because we continue to execute in gaming, in consumer products and toys and games. And we'll also add an array of experiences, live experiences, for the brand as we roll out globally. So we believe in the growth prospects of the brand. And the teams are very excited about executing across the blueprint.

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Operator [29]

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

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [30]

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And just a couple of follow-ups here. One, Deb, a little more color on the SD&A, seem to be down substantially, and again, on an adjusted basis. If you could just give us a little more color there, the sustainability of that from the cost programs you know then or just, again, just a little bit more color on that from what happened in the quarter.

And then as it relates to Star Wars and the Mandalorian, if we look into '20, how would you say the trajectory of the core Star Wars is relative? Obviously, Mandalorian, maybe you all know that's going well. But if you put those 2 together, the collective Star Wars, just maybe how that's looking.

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Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [31]

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

The other thing that's offsetting some of those cost savings this year is a bit of compensation expense as well.

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Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [32]

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Yes. So for Star Wars, it's great to see the level of brand engagement that's coming from the fan. But also it's really impressive to see how kids are coming into the brand and their engagement that comes from both the Rise of Skywalker as well as for the Mandalorian. We are very excited to see the Mandalorian Season 2 coming later this fall. Disney+ also has the Clone Wars that are on in the spring. There's also a live action kids game show called Jedi Temple Challenge, which we think will continue to engage kids.

And then, of course, they have 2 major theme park launches for Galaxy's Edge both at Disney World and Disneyland. We think all of that as -- all adds to the engagement around the Star Wars brand, and we're seeing that in the results.

Certainly, we've seen great growth of our Black Series and the fan-oriented product, but we're also seeing engagement around light sabers and role play that are expressly designed and made for kids. We think the brand continues to perform very well in 2020. We're obviously excited about the home entertainment windows for Star Wars, of course, as well as for Frozen. And we believe that will just continue to add to engagement. I think that this is a property, as Disney's outlined, that will perform both in film but also in television, continue to evolve as a property that will be in stream television via Disney+ and engage fans and families in that way.

I think that as we sort of step back, we think that this streaming entertainment that also engages people in other attributes and brands, including merchandising and consumer products, is the next watchword for our industry and for the category. And it's perfectly timed with our efforts with eOne as we develop our properties for television and for film.

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Operator [33]

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Our next question is from the line of Mike Ng with Goldman Sachs.

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Michael Ng, Goldman Sachs Group Inc., Research Division - Research Analyst [34]

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I just have one for Deb and one for Brian. Deb, could you just talk a little bit about advertising expense in the quarter? It was the lowest level in 4Q that we've seen in several years. I know you've mentioned a few things, the high level of partner brands mix and some marketing efficiencies, but could you just give a little bit more color there? And said differently, should we expect next year's advertising expense to return closer to 2018 levels as partner brands mix normalizes?

And then for Brian, I was just wondering if you could talk a little bit more about the engagement and revenue trends for Magic Arena. How did that look in the quarter relative to earlier in the year, for instance?

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Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [35]

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

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Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [36]

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And for MAGIC: THE GATHERING, as you know, Mike, it operates on a number of levels. And the brand was up more than 30% for the year. And you can't underestimate the power of all of the storytelling that comes from the card releases and the fact that the tabletop game was up in such a substantial way with engagement around events and unique players, all pointing to incredibly strong metrics.

Our digital Magic Arena business also grew several fold throughout the year. We saw strength in each and every quarter, including growth in the fourth quarter. We were gearing up for and have now executed Magic Arena on the Epic Game Store, which just occurred. And we're really going to be ramping up all the marketing in partnership with Epic to bring Magic to more gamers than ever before.

Magic Arena will move to mobile through -- in the year, in 2020. I'm going to let Chris outline the plans there, but that's incredibly exciting as we give more people access to Magic Arena, recognize it's been a PC-based game thus far. As well our partnership with Tencent, we expect that to ramp and to have an impact on the brand in 2020 as we look at new markets, new geographies around the world.

In addition to that, for Magic, you will see a new game launch this year in Magic in the casual arena. And I'll let Chris walk you through that.

You'll also see great digital game development for D&D, and we'll see you on February 21 to outline that.

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Operator [37]

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

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Linda Ann Bolton-Weiser, D.A. Davidson & Co., Research Division - Senior Research Analyst [38]

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

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Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [39]

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

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Linda Ann Bolton-Weiser, D.A. Davidson & Co., Research Division - Senior Research Analyst [40]

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

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Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [41]

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Yes. Our e-commerce business was up substantially in 2019, far in excess of our underlying POS gains. And we've seen incredible growth in both pure-play e-commerce as well as with omnichannel. We see our retailers gaining share in those areas. We've seen that for e-com players as well as omnichannel competitors. And our products on e-com have performed incredibly well with top sellers that included products from Frozen, from NERF, furReal Cubby, which enabled furReal to regain its status as the #1 brand in that space. We exceed Hasbro Games, particularly the classic games, over the holidays, performing very well. And we have seen a several percentage point increase in our overall sales in e-com as a percent of total. And so I would expect that e-com sales as a percent of total now should be in the low 20s. We're just looking at some final numbers there. But again, we expect that to continue to progress. Year-to-date, 2020, e-com sales continue to be severalfold stronger than underlying retail sales. And our underlying retail sales are good. So again, as we give consumers direct access to our products, either through e-commerce or omnichannel, they are making the choice for several of Hasbro's brands and our innovative products.

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Linda Ann Bolton-Weiser, D.A. Davidson & Co., Research Division - Senior Research Analyst [42]

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

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Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [43]

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

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Operator [44]

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Our next question is from the line of Ray Stochel with Consumer Edge Research.

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Raymond Leonard Stochel, Consumer Edge Research, LLC - Analyst of Entertainment [45]

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

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Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [46]

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

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Raymond Leonard Stochel, Consumer Edge Research, LLC - Analyst of Entertainment [47]

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

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Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [48]

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Yes. Well, what's been fantastic is the success that The Walt Disney Company has seen with Disney+. We're very happy to see the success that they're having, the number of subscribers into the tens of millions and the engagement with properties like the Mandalorian. We believe that that's just the beginning of this next phase of engagement for fans and families around the world. And it really portends great things as we look at our efforts with eOne to develop Hasbro IP for multiple platforms to drive storytelling and engagement of our end.

What we've seen across the industry is that the top growth drivers in the traditional toy and game industry are all associated with storytelling as well as engagement across platforms like gaming and other experiences.

Just think about in the NERF business alone, the impact from Fortnite, and as we've been able to develop an innovative line for Fortnite or as the Mandalorian has really captured the imagination of fans, families, kids, just our opportunity there, even beyond the child and some of those products, the fact that the Black Series products from the Mandalorian were selling so strongly over the holidays, it would all -- it all says that people really want to engage with great character and story. It's been our belief all along. It's how we've oriented our company, and that's why we'll continue to lead and also how we're able to engage people in an online and omnichannel e-commerce world. The opportunity to connect content with commerce is incredibly compelling.

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Operator [49]

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Next question is from the line of Bryan Goldberg with Bank of America.

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Bryan Daniel Goldberg, BofA Merrill Lynch, Research Division - Research Analyst [50]

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I've got 2 quick ones. I was curious. Based on your past experiences with Disney, how significant are the home entertainment window releases for intellectual properties like a Frozen or Star Wars in terms of stimulating Partner Brand sales? If you could walk us through a little more of what you could do to leverage these events, that'd be very helpful.

And then my second question is related to your comments on the potential -- well, the supply chain disruption that you are seeing from coronavirus. You called out some priority items you had flagged as making contingency plans for. And I was just wondering if you would be able to update us as to what brands those items might be associated with.

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Brian D. Goldner, Hasbro, Inc. - Chairman & CEO [51]

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Sure. I'll take the first one, and Deb can walk you through the second question -- answer the second question.

If I step back historically a bit, back in the days where DVDs were the way in which people saw home entertainment, we saw incredible impact from the launch of the DVDs as it came into the home. It engaged the family, engaged kids who want to view content over and over again. We're really seeing the return of that kind of heyday of home entertainment enjoyment now through streaming services and through electronic sell-through windows as well as for the DVD business. So home entertainment is back to that. It's a pinnacle of success in engaging fans and families, the opportunity for kids to see content over and over again for families to enjoy that content and to also share it with younger siblings who may or may not have made the trip to the theater but certainly can watch the content along with family and friends at home. The fact that more people are watching content at home through streaming services also benefits us, and we're seeing that across our business.

So I expect that home entertainment will continue to increase in importance, that streaming services will continue to play an important role, and I think, an increasingly important role over time as we now connect these great stories with people's desire to engage with brands across multiple platforms. And we're very excited about it. We're entering a next era of consumer and audience engagement.

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Deborah M. Thomas, Hasbro, Inc. - Executive VP & CFO [52]

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Great. Thanks, Brian. And in the coronavirus, as we look at it, our thoughts are obviously with the people impacted by the outbreak. It includes our third-party manufacturers and also our employees in China. We've had and we continue to have office and third-party factory closures. And really, the biggest unknown right now is how quickly the manufacturing factories can get their production ramp back up given the amount of travel. If you think about it, when people travel to visit families in Chinese New Year, now they need to travel back. So travel is limited, places are still closed. Our employees are working from home. So we have protocols in place with that.

So as we think about how all the efforts we've made to diversify our manufacturing into different locations, still about 2/3 of our product overall, our global sourcing is coming from China. So we are looking at it very closely. Right now the impact is small. The commercial impact is small. There's a bit in China as people couldn't shop during the holidays, but it's small. That being said, our first quarter is typically a lower revenue quarter for us. So the longer it lasts, that the outbreak isn't contained and people can't travel back and start production up again, there could be an impact on our first quarter. But for the full year, we remain optimistic that we'll be able to catch up over the full year, and we'll continue to add color to the impact as we look through. There's no one particular brand that we would call out on that. We are prioritizing what needs to be done quickly and move here quickly as well.

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Operator [53]

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Thank you. At this time, I will turn the floor back to Debbie Hancock for closing remarks.

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Debbie Hancock, Hasbro, Inc. - SVP of IR [54]

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Thank you, Robin. Thank you, everyone, for joining the call today. The replay will be available on our website in approximately 2 hours. Management's prepared remarks will be posted on our website following this call. As we mentioned, we're hosting our annual Toy Fair Investor Event on Friday, February 21, and we look forward to seeing many of you there. Thank you.

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Operator [55]

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