Jul 21, 2008
Executives
Karen A. Warren - Investor Relations Brian Goldner - President, Chief Executive Officer, Director David D.
R. Hargreaves - Chief Financial Officer, Chief Operating Officer Deborah Thomas Slater - Senior Vice President, Controller
Analysts
Tony Gikas - Piper Jaffray Felicia R. Hendrix - Lehman Brothers Gregory Badishkanian - Citigroup Sean P.
McGowan - Needham & Company Timothy A. Conder - Wachovia Securities Drew Crum - Stifel Nicolaus David Leibowitz - Burnham Securities Gerrick L.
Johnson - BMO Capital Markets John G. Taylor - Arcadia
Operator
Good morning and welcome to Hasbro's second quarter earnings conference call. (Operator Instructions) With us today from the company is Senior Vice President of Investor Relations, Karen Warren.
Karen A. Warren
Thank you, Shirley and good morning, everyone. Joining me today are Brian Goldner, President and Chief Executive Officer; David Hargreaves, Chief Operating Officer and Chief Financial Officer; and Deb Thomas Slater, Senior Vice President and Head of Corporate Finance.
To better understand our second quarter results, it would be helpful to have the press release and financial tables available that we issued earlier today. The press release includes information regarding non-GAAP financial measures discussed on today’s call and it is available on our website at Hasbro.com.
We would also like to point out that on this call whenever we discuss earnings per share or EPS, we are referring to earnings per diluted share. During the call this morning, Brian will discuss key factors impacting our results and David will review the financials.
We will then open the call to your questions. Before we begin, let me note that during this call and the question-and-answer session that follows, members of Hasbro management may make forward-looking statements concerning management’s expectations, goals, objectives, and similar matters.
These forward-looking statements may include comments concerning our product plans, anticipated product performance, business opportunities and strategies, financial goals and expectations for achieving our objective. There are many factors that could cause actual results and experience 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, in today’s press release, and in our other public disclosures. We undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call.
I would now like to introduce Brian Goldner. Brian.
Brian Goldner
Thank you, Karen. Good morning, everyone and thank you for joining us.
Before David takes you through a detailed review of the financials, let me take a moment to comment on our results. Our company continues to perform well and we are very pleased with our results in the second quarter and year-to-date.
Hasbro delivered double-digit revenue growth with revenues up 13% to $784.3 million for the quarter, compared to $691.4 million last year. Absent the favorable impact of foreign exchange, revenues were up 10%.
Operating profit was $65.5 million, or 8.4% of revenue, which is consistent with the comparable period last year as a percentage of revenue. Net earnings for the quarter were $37.5 million compared to $4.8 million in 2007, with earnings per share of $0.25 compared to $0.03 per share in 2007.
Excluding the final Lucas mark-to-market expense last year, 2007 earnings for the quarter would have been $41.3 million, or $0.24 per diluted share. As part of our longer term strategy to grow Hasbro, we continue to make investments in many areas of the business, including emerging markets, entertainment, and digital gaming.
With the current strength of our product line, we’re able to make investments that will provide value to our shareholders over the long-term while continue to deliver strong earnings. Now let’s review the global quarterly performance of our major product categories.
The boys business was up 13%, with Star Wars, Marvel, and Indiana Jones driving the growth. Transformers continued to represent a significant part of our boys business.
As expected, revenues declined in the quarter; however, year-to-date Transformers was up 31% in the boys category. The Transformers animated series launched on Cartoon Network in January and is performing very well.
Iron Man and Hulk, both part of our Marvel line, did well in the quarter. Iron Man was particularly strong at the box office and our toys performed extremely well at retail.
In a number of instances, we were in short supply during the quarter. We recently began shipping new Iron Man product and we will be well-stocked for the DVD release this fall.
We expect Iron Man to exceed our original expectations for the year. Star Wars continues to do very well.
It was up 82% for the quarter in the boys category. With the upcoming theatrical release of The Clone Wars animation, along with the television debut in the fall, we expect Star Wars to have another very good year and to grow compared to last year.
As we have been saying, we believe that our six major boys initiatives in 2008 could quite possibly equal the three major boys initiatives in 2007. Based on where we are today, we are on track to deliver on this objective.
Another strong business for Hasbro continues to be our girls category, with revenues up 24% in the quarter, driven by the success of Littlest Pet Shop, Furreal Friends, and My Little Pony. Our tweens category was up 5% in the quarter, driven by Nerf, which was up 29%.
The preschool category was up 11%, with Playskool up 24%. Contributing to the growth was the continued success of In the Night Garden.
Our games and puzzle business was up 12% for the quarter, with our top performer, Monopoly, up 26%, primarily due to the continued strength of Monopoly Electronic Banking. We are looking forward to launching the first ever global Monopoly, Here and Now: The World Edition, in August.
In addition to Monopoly, a number of our games performed well in the quarter, including Trivial Pursuit, Twister, Operation, and The Game of Life. Our Wizards of the Coast trading card game, Duel Masters, is doing very well in Japan.
Hasbro's family game night will be returning this fall with a promotional program for a number of our board games targeted to today’s families. Family game night will also gain a foothold in the digital arena this fall, when Electronic Arts launches its family game night offering, featuring reimagined versions of some of Hasbro's classics, like Connect Four, Battleship, Yahtzee, Boggle, and Sorry.
This new title from EA showcases the power and versatility of our games brands and the family game night platform. In addition, we are working with EA on a number of integrated promotional programs for the fall that will support the launch of both our toys and their digital games, including efforts for three of Hasbro's most popular brands, Littlest Pet Shop, Nerf, and Monopoly.
As we’ve said, we believe there are significant growth opportunities in emerging markets. As a result, we’ve been increasing our investments in a number of new markets this year.
At our new office in Brazil, we added sales and marketing support as we transition away from a distributor model. We are also in the process of opening offices in Russia, China and the Czech Republic.
Our brands have proven worldwide appeal and as we increase our presence around the globe, we expect to grow our emerging market business significantly over the next few years. For 2008, I don’t want to forecast what’s going to happen with the economy.
Clearly the current economic situation, both in the U.S. and around the globe, make it a much more challenging environment than we would like.
Having said that, as we shared with you in February, Hasbro has performed well in the most recent economic downturns. While we cannot guarantee what will happen in the future, we believe we are well-positioned to have a strong 2008.
In closing, we’ve had a great year thus far, our business is strong, and we remain committed to investing in the future to ensure we deliver value to our shareholders for the long-term. Now let me turn the call over to David to talk more about our second quarter results.
David.
David D. R. Hargreaves
Thanks, Brian and good morning, everyone. I too am very pleased with the results we reported today.
For the quarter, we delivered worldwide net revenues of $784.3 million, compared to $691.4 million last year, an increase of 13% or $92.9 million. Excluding the favorable impact of foreign exchange, revenues were up 10% or $67.9 million.
I am particularly pleased with our revenue growth, recognizing that we had an extremely strong second quarter in 2007 when revenue was up 31%. Operating profit for the quarter was $65.5 million, or 8.4% of revenue, compared to $55.8 million, or 8.1% of revenue last year.
During the quarter, we continued to invest in our digital strategy, including the Wizards of the Coast initiative and building our business with Electronics Arts. And as Brian mentioned, we are also building infrastructure in emerging market locations.
We are committed to investing in the future growth of our business and our operating profit during the quarter reflects this investment. Some of these investments will continue throughout the year.
However, they have always been contemplated in our statement that we should be able to grow earnings per share in 2008. Another area I would like to comment on is the impact of input cost inflation on our business.
When we came into the year, we didn’t envision oil costing $130 a barrel. Clearly this is impacting resin costs, ocean freight charges, and the cost of transportation to our customers.
However, through a combination of cost-saving initiatives and pricing actions, thus far we have been able to mitigate most of these increases and they are not having a material impact on our results. Moving on to our segment results, beginning with the U.S.
and Canada segment, net revenues were $467.7 million, compared to $421.9 million last year, an increase of $45.8 million, or 11%. U.S.
and Canada operating profit for the quarter was $43.7 million, or 9.3% of revenue, compared to $35.5 million or 8.4% of revenue last year. The 2007 results include a $10.4 million charge related to the Easy Bake Oven recall.
As I mentioned, there have been some expenses this year associated with the investments we are making to grow our business. Net revenues in the international segment were $293.7 million, compared to $255.2 million a year ago.
The segment was up 15% in U.S. dollars and 6% excluding the impact of foreign exchange.
The international segment reported operating profit of $14 million compared to $15.3 million last year. The decrease in operating profit is primarily due to the investments we are making in the emerging markets.
Now let’s take a look at earnings -- for the second quarter, we reported net earnings of $37.5 million, or $0.25 per share. This compares to $4.8 million, or $0.03 per share in 2007.
The 2007 results included a $36.5 million charge related to the repurchase of the Lucas warrants. During the quarter, average diluted shares outstanding were $155.1 million, compared to $164.6 million last year.
Earnings before interest, taxes, depreciation, and amortization were $109.3 million, compared to $68 million a year ago. Gross margin for the quarter was 60.7%, compared to 60.5% a year ago.
As a I mentioned, thus far we have been able to mitigate most of the impact of input cost inflation through cost-saving initiatives and pricing actions. Now let’s take a look at expenses.
Royalty expense for the quarter was $68.2 million, or 8.7% of revenue compared to $62.5 million, or 9% a year ago. As we have discussed, entertainment based product lines continued to play a major role in our growth.
Research and product development expense, while increasing $6.6 million to $45.4 million, was relatively flat on a percentage basis. The increase in dollars spent reflects our continued investment in new product development.
Advertising expense at 11% of revenue was consistent with last year as a percent of revenue. However, it did increase to $86.2 million compared to $79 million last year, primarily due to the impact of foreign exchange.
SD&A expenses at $190.1 million, or 24.2% of revenue, increased $25.5 million compared to last year. The increase in dollars is due to a number of factors.
Firstly, much of the investment spending we’ve already talked about is classified as SD&A. Secondly, there’s the impact of foreign exchange, and lastly there are higher shipping and distribution costs associated with increased shipments and generally higher transportation costs.
Interest expense increased by $6.3 million to $13 million, primarily due to the $350 million of long-term debt we issued in the third quarter of last year. Other income net totaled $2.7 million compared to an expense of $27.2 million a year ago.
The 2007 results included a $36.5 million unfavorable mark-to-market adjustment to the Lucas warrants. There is no adjustment in 2008, since we repurchased the warrants in the second quarter of last year.
Our underlying 2008 tax rate was 31.3%, compared to our 2007 full-year underlying tax rate of 30.5%. Now let’s turn to the balance sheet.
At quarter end, cash totaled $594.6 million, compared to $525.6 million a year ago. We have generated significant cash from operations during the last 12 months and we raised $346 million in cash through a debt offering last September.
We have used this cash productively over the course of the last year in a number of ways, including the purchase of Cranium and the acquisition of the rights to Trivial Pursuit, as well as our share buy-back program and paying dividends to our shareholders. Although it didn’t impact our second quarter, I want to mention that on July 15th, we paid off $135 million of notes that became due.
Our receivables of $562.5 million were up $144.8 million compared to $417.7 million last year. The increase is primarily due to higher sales volume, a significant reduction of the use of our securitization facility, and the impact of foreign exchange.
Absent the impact of securitization, DSOs were 74 days compared to 72 days last year. Inventories increased to $375 million compared to $352.5 million a year ago, primarily due to the impact of foreign exchange and to support the growth in our business.
In summary, we are very pleased with the results we reported today. We were able to significantly grow revenues against an extremely strong second quarter in 2007.
We increased earnings and profitability in a difficult economic environment while also making key investments for future growth. Finally, we continue to return cash to our shareholders with our quarterly dividend and open market repurchases of our common stock.
I believe we remain on track to achieve our full year goals and with that, Brian, Deb, and I would be happy to take your questions.
Operator
(Operator Instructions) Our first question comes from Tony Gikas. You may ask your question and please state your company name.
Tony Gikas - Piper Jaffray
Good morning, guys, and great job on the quarter. A few questions; could you talk a little bit about the pricing improvement that you expect to experience in the second half of this year relative to the second half of last year?
Do you see -- a second question -- consumer spending challenges in your international markets as significant as the consumer spending challenges you are seeing here in the U.S.? Third question, maybe just a little bit on Transformers, the next property coming.
Could you give us a little idea of the growth that you might expect to see with your product line as that movie rolls out? And the fourth question, could you just give us a little update on your ad spending, how that’s trending on your Marvel intellectual property related products?
Has it been trending above or below your expectations? And if you could give us a percent of sales, that would be great.
David D. R. Hargreaves
I’m going to take the first one in terms of pricing. As you know, we talked about this at our February analyst meeting, we were expecting significant increase, cost increases out of the China in particularly and we said at that time that firstly we were going to try and offset with cost-saving initiatives and product improvement initiatives, process improvement initiatives.
But to the extent that we couldn’t do that, we would take some selective pricing and we did that certainly on new items when we came into the year. We priced them to be consistent with the latest commodity costs and we had some increases on carryover products.
Since that time, oil has continued to go up, as north of $130 a barrel, and what we anticipated in February of a 14% to 15% increase out of the orient has ended up being closer to the 17% to 18% range and in addition, obviously the costs of transportation out to the customers has gone up. So we are actually going in and we are taking a second round of pricing, which we really hadn’t envisaged in February, and basically that will be effective September the 1st.
We already announced it to our customers. They obviously don’t like it but they recognize that their own costs are going up, their own label product and they’ve accepted it.
So there will be sort of a mid-single-digit price increase effective September the 1st, in order to help us maintain our margins in light of rising costs.
Brian Goldner
In terms of consumer spending ,we haven’t seen anything that’s significantly different between some of the major mature markets. Clearly growing faster in our emerging markets throughout Asia, as well as in Eastern Europe and Latin America.
Transformers, I’ll talk a little bit about next year; the movie is in production right now. It’s scheduled for late June next year.
We also have G.I. Joe as a motion picture for early August next year, and our plans are underway.
David D. R. Hargreaves
And in terms of ad spending, I mean, on the entertainment product, historically ad spending against entertainment is a bit lower than the average because obviously it’s the movie that’s driving the business.
Tony Gikas - Piper Jaffray
So has the ad spend on those Marvel properties been above or below your expectation, or right where you were expecting? Is it a single-digit number as well?
David D. R. Hargreaves
Well, we’re not going to give you a lot of detail but basically, it’s at expectations. We’ve been spending advertising monies against these product lines but as I’ve said, when there’s the whole awareness of the product line, which is driven by the movie, we don’t spend as much as we do against non-movie driven properties.
Tony Gikas - Piper Jaffray
Okay. And then could product sales on Transformers next year, guys, I mean, could that be up 20% over the ’07 levels?
Brian Goldner
Clearly we are very focused on making a great product line, including licensed products and videogame products, and we are very excited about the movie that’s in production. Clearly a great story and great characters that we are telling but again, we’ll wait and see.
Tony Gikas - Piper Jaffray
Okay, and then last question and than I’ll let the next caller get on; G.I. Joe, maybe just an update on the movie and timing.
And is that primarily going to be a domestic opportunity or how do you view that?
Brian Goldner
No, G.I. Joe is really a global opportunity.
If you go back to the ‘80s, this movie is based on the 1980s comics, the Marvel comics series. The movie will launch globally.
The movie’s title is G.I. Joe: The Rise of Cobra.
It’s an origin story about the G.I. Joes up against the Cobra forces.
It’s very much of a comic-book movie, I think as a genre would go, and a great action-adventure movie with Steve Sommers for the Mummy movies, as director. So again, lots of excitement and certainly a full product line, including videogame.
Tony Gikas - Piper Jaffray
Okay. Good luck.
Thanks, guys.
Operator
Thank you. Our next question comes from Felicia Hendrix.
You may ask your question and please state your company name.
Felicia R. Hendrix - Lehman Brothers
Good morning, guys. Just on cost of goods sold, if you adjust for the Easy Bake recall last year, we’re calculating that gross margins were about 62%, so if you just look on an adjusted basis year over year, there was a decline.
I know costs are higher. David, you did say you mitigated those, so I was wondering if there was also mix in the quarter that drove the margins down year over year.
David D. R. Hargreaves
I think there’s a little bit of mix but I think if you go back and you look at our gross margins for the second quarter over the last five years, in terms of reported basis, this is the highest since 2002, so we’re not worried at all about our gross margins. Our gross margins are exactly where they kind of need to be.
Felicia R. Hendrix - Lehman Brothers
Okay. And then just with Star Wars, I’m wondering about the strength in the quarter.
With the August release, did you just ship a little bit earlier than you normally would or is it just also just regular underlying strength of Star Wars?
Brian Goldner
Felicia, it’s both. It’s been -- the business has remained strong in the year, as well some initial shipments.
But again, the underlying business based on the innovation and the efforts from Lucas and our team here at Hasbro, it’s been great.
Felicia R. Hendrix - Lehman Brothers
Okay, great. And then in the preamble, you didn’t really touch on the performance of Hulk.
I was wondering if you could just fill us in there.
Brian Goldner
Hulk is about where we wanted it to be for our plan.
Felicia R. Hendrix - Lehman Brothers
Brian, you’re answering these questions so shortly. Do you want to give us a little more?
Brian Goldner
Sure. So again, what we like about where Hulk has ended, it’s done well at the box office.
It clearly has reset that franchise for the future. Certainly the movie performed well in terms of being an appealing movie for people.
Our products have been in line with what our expectations have been around the world.
Felicia R. Hendrix - Lehman Brothers
Okay. And then just finally, can you just give us the specific DVD release dates for Hulk, Iron Man, and Indiana Jones?
Brian Goldner
I don’t know that everything has been released just yet, but what we can tell you is that Iron Man is at the end of September and that Hulk is toward the end of October.
Felicia R. Hendrix - Lehman Brothers
Okay, October. And then just finally, David, on the receivables, I’m assuming that going forward we should see a reduction in securitization still.
We might see tougher -- you know, not apples-to-apples comps in receivables going forward?
David D. R. Hargreaves
You are probably going to see receivables higher because we will utilize our securitization facility less go-forward. We clearly have cash on hand and a bank revolver facility, so we really don’t need to dig into the securitizations much.
Felicia R. Hendrix - Lehman Brothers
Okay. All right, thank you very much.
Operator
Thank you. Our next question comes from Greg Badishkanian.
You may ask your question and please state your company name.
Gregory Badishkanian - Citigroup
Just a few quick questions here; you mentioned I think Iron Man, a little bit low in inventory; how about overall? What were your inventory levels at the retail level finishing out the quarter versus last year?
David D. R. Hargreaves
I think our retail inventories are at, certainly in the U.S., are probably a little bit higher than they were this time last year. I think this time last year, we were very much chasing Transformers and we were sort of short supply on [some of those].
And I think we’ve shipped in product to support the Star Wars: Clone Wars, which is really starting to ship now, so during the second quarter there were a little bit of shipments of both adding to that. But certainly whilst they may be a little bit higher at retail, it’s not something that we are at all concerned about as we sit down and look out the year with our major retailers and look at what their forecasts are for the year.
We are very comfortable with the level of retail inventories we have out there.
Gregory Badishkanian - Citigroup
Good. And as you look out internationally, are there a few markets that did particularly well or below kind of the average that brought it down?
Brian Goldner
Well, as we look out over the markets, we’re seeing great success in some of the emerging markets, certainly through Asia, we’re seeing our business continue to grow. In our emerging markets, we’re just up and running in Brazil so we’re doing our first shipments, transitioning away from the distributor model.
In Eastern Europe, Poland, Czech Republic, Russia, quite good -- and then as we saw, the numbers in U.S. and Canada were quite good as well, clearly double-digit growth there.
So again, around the world, some good numbers. Some markets slightly ahead of others but nothing out of the ordinary.
Gregory Badishkanian - Citigroup
Great. Thank you.
Operator
Thank you. Our next question comes from Sean McGowan.
You may ask your question and please state your company name.
Sean P. McGowan - Needham & Company
A couple of quick questions, some for David, some for Brian; David, tax rate expectation for the full year?
David D. R. Hargreaves
I’m actually going to let Deb answer that one.
Deborah Thomas Slater
The tax rate for the quarter was 31.3%. As David said, that kind of compares to a rate absent the impact of Lucas last year of 30.5%.
I think for the full year, we would expect to be around that 31.3% as we plan to incur some tax expense on repatriating some of our international earnings.
Sean P. McGowan - Needham & Company
Okay, thank you. Looking at the balance sheet, I think in know the answer but you had some short-term debt and you had your cash positives.
Is that just locating debt in different parts of the world?
Deborah Thomas Slater
That’s exactly right. Most of our cash is outside of the U.S.
right now.
Sean P. McGowan - Needham & Company
Okay. Two others -- I don’t know if this David or Deb; what drove that decision to decrease the securitization?
I mean, you had a lot of cash last year as well. Was that more of a cost issue or availability or credit markets?
David D. R. Hargreaves
No, I think we’ve always had more cash overseas, so I think last year in order to fund receivables without repatriating a lot, we actually dipped into securitization. Obviously last year I think our operating cash flow was about $602 million, so we are -- we do have more cash but at our working capital peak, we have a choice between dipping into our revolver, bank revolver, or dipping into the securitization and we will do whichever is the lowest cost at the time.
And right at the moment, [that being bank revolvers, we’ll probably consider] securitization.
Sean P. McGowan - Needham & Company
Okay, that makes sense. And the final question; Brian, is there anything going on in Hollywood that would make you concerned about the opening of Joe?
I mean, is there any -- have there been any delays in that production?
Brian Goldner
We were out in L.A. over the last couple of days.
We got to see a lot of G.I. Joe footage.
They’re in editorial now so we’re done with the principal photography, so now it’s special effects and editorial, so there we’re not concerned at all and of course, well on its way. Transformers is in the midst of production.
Again, out seeing production earlier and again, no concerns.
Sean P. McGowan - Needham & Company
Okay, great. Thank you very much.
Operator
Thank you. Our next question comes from Tim Conder.
You may ask your question and please state your company name.
Timothy A. Conder - Wachovia Securities
Thank you. Congratulations again on the good execution.
A couple of items here, everyone, and a I apologize if some of this is repetitive, Brian, I had some troubles getting on. I just got in at the end of your comments but the royalty, I don’t know if this is better for you, Brian, or David, but the royalty expense is a little bit more than we anticipated.
Was that driven by the early ship of the Star Wars product or was there something else going on there?
Brian Goldner
David, do you want to take that?
David D. R. Hargreaves
I think a lot of our growth was being driven by entertainment, so whereas last year we had a high royalty because it was really Transformers and Spider-man, this year some of our core products [inaudible] been growing but there has been a lot of Star Wars, there continues to be a lot of Transformers movie-related product which does have a small royalty to studio, and of course there’s been all the Marvel product in terms of Iron Man and Hulk. And also, of course, Indiana Jones, so all of those items have royalties that go with them.
So I think the thought that royalties would be a lot lower in percentage terms than last year is probably unfounded.
Timothy A. Conder - Wachovia Securities
Okay, and relating to Star Wars, as you see it at this point, granted it’s still a little early here, would it be inconceivable that the revenue from Star Wars this year may match what you saw in 2006 or even ’05?
Brian Goldner
Tim, I won’t comment specifically on the revenue comparisons by year; what we will say is that our retailers around the world have good plans, very strong plans for Star Wars. The animation is terrific, the theatrical launch followed by the TV play will be very good for the business, both from an impact standpoint and [event tie-ins] and then driving through the holidays and the innovation from our teams across the product line have been great.
And of course, we have said that we saw Star Wars growing this year as compared to last year.
Timothy A. Conder - Wachovia Securities
Okay. And then two more, if I may; Electronic Arts, again, Brian, I apologize if you made any commentary related to that but if you could give us any update on how that’s progressing -- ahead of plan, on plan, behind plan.
And then David, in your comments regarding the September coming price increase, do you anticipate seeing any forward buying by retailers ahead of that?
Brian Goldner
On EA, I will tell you that the relationship is really terrific, that EA development is well underway. We’ll probably have around 30 different titles, recognizing that we are activating these titles on a number of platforms, from iPod to iPhone, online, console, Wii, Nintendo DS, so again across all the major different platforms and of course, associated with each of the different brands.
They are also launching a family game night compendium, which will tie to our team’s family game night efforts for the fall. So the development is underway.
In terms of revenue recognition and when we’ll see that revenue, as we’ve said, we’ll really see more of that in 2009 and ’10 and beyond.
Timothy A. Conder - Wachovia Securities
Okay, and again, Brian, there you anticipate some slight accretiveness in 2009?
Brian Goldner
In 2009, yes, we believe that you’ll start to really see some of the revenues from the relationship. It’s certainly up and as well as we expected and the teams are working quite well together in making really great reimagined versions of Hasbro brands.
These aren’t just our board games or toys done in two dimension but really brought to life and I would encourage you to go to whether it’s iTunes or somewhere else and see some of the products online. They’re great.
David D. R. Hargreaves
In terms of the price increase, effectively September the 1st, so arguably people could pull forward a bit of September into August but that certainly wouldn’t impact the quarter. It’s not happening at the end of September or quarter end, so I don’t think it’s going to impact the quarter even if there is a slight bit of pull forward.
And I think we’re talking about mid-single-digits and I think retail is very focused on inventory controls and I doubt if they are going to be persuaded to pull a lot forward in order to avoid that.
Timothy A. Conder - Wachovia Securities
Okay, great.
David D. R. Hargreaves
And as I said, it won’t impact the -- even if there was a bit from one month to the next, it wouldn’t impact the quarter.
Brian Goldner
And Tim, just to follow-up on what I said, if you want to see some of the online games, go to pogo.com and you will see the EA site there and our games are up and prominent on that site.
Timothy A. Conder - Wachovia Securities
Great. Thank you.
Operator
Thank you. Our next question comes from Drew Crum.
You may ask your question and please state your company name.
Drew Crum - Stifel Nicolaus
Good morning, everyone. I want to revisit the question on the film properties, Brian.
I just want to make sure -- it sounds like you are comfortable with production on Transformers and G.I. Joe.
At what point does the Screen Actors Guild disruption impact the release date for that film? Secondly, along those lines, the Paramount financing with Deutsche Bank fell through last week and I’m just curious as to how that impacts G.I.
Joe. As you look to the Universal film slate, any issues with funding there?
Brian Goldner
On Transformers, we’re well underway in production. We have our product lines and videogames and licensed products under development.
Michael Bay and the team from Dreamworks and Paramount have done a great job in organizing the production. Thus far we haven’t seen anything related to Screen Actors Guild that would represent a change in their working on the film.
G.I. Joe, as I said, was already shot so now it’s a matter of editorial and special effects and things.
Give me the second -- on the financing piece.
Drew Crum - Stifel Nicolaus
Yeah, the financing for the Universal slate.
Brian Goldner
We don’t see any issues related to financing as it goes to Transformers or G.I. Joe or the Universal slate.
There are no concerns that we have out there.
Drew Crum - Stifel Nicolaus
Okay, very good. And then, guys, can you provide an update on the integration of Cranium -- was it dilutive or accretive in the quarter?
And just your outlook for the balance of the year with that property?
David D. R. Hargreaves
I think obviously there’s some amortization cost and there’s some costs of the people we have on board that we brought over from Cranium when we acquired it, so we’ve got some costs in the quarter. And really, we’re integrating the line, we’re cleaning up retail, and our significant shipments really don’t start until the third or fourth quarter, so I think you’d have to say that during the second quarter on a standalone basis, it was probably dilutive.
For the full year, we are certainly anticipating it should be accretive.
Drew Crum - Stifel Nicolaus
Okay, and then last question is a housekeeping item -- CapEx in the quarter?
David D. R. Hargreaves
It was about $30 million, which has been higher than historic second quarters. That’s really down to three things; firstly, we’re upgrading our SAP system, so we’ve got some significant development costs already starting with that.
We’ve had SAP for 10 years. We’re just moving to a newer version and doing some upgrades.
Secondly, you may recall that during January, we announced that we’d worked with our unions at our East Long Meadow factory and we’ve got agreement to drive in new work practices and take some staffing reductions in order to make that plant more efficient. Part of a quid pro quo for that was that the company would invest in some additional capital equipment, so you are seeing some of that come through.
Drew Crum - Stifel Nicolaus
Okay. Thanks, guys.
Operator
Thank you. Our next question comes from David Leibowitz.
You may ask your question and please state your company name.
David Leibowitz - Burnham Securities
Very briefly, we’re very upbeat on much of the line. Somewhere in there, there have to be some disappointments.
Can you identify them for us? I mean, it’s not like [Lobogon], where everybody is above average.
David D. R. Hargreaves
No, I mean -- it’s a struggle, David. If you look at every category that we’re in, boys, girls, tweens, games and puzzles, when you look at our Q, you are going to find that we are up in every category.
Brian Goldner
David, I guess the one comment I would make would be in our tweens, we noted that the business was up 5% in that category and yet Nerf was up significantly higher. I would say that year over year, iDog is down and that’s what’s driven that difference.
So there’s a product that’s not performing as it did in the second quarter last year.
David Leibowitz - Burnham Securities
Okay. Second of all, there are an awful lot of products and brands that you folks own that have not seen the light of day for some time.
Can you tell us which ones might be coming back, either this year or next year that have not yet been spoken about?
Brian Goldner
David, no, we wouldn’t comment on that right now. Suffice it to say that the teams are busily working on ’09 and 2010 and we’ve got a great group of marketers and product developers and designers and their plans are well underway.
David Leibowitz - Burnham Securities
Okay, and the last question, if I may; what percentage of the pretax earnings came from licensing income?
David D. R. Hargreaves
I think we’ve had that question several times in the past and I think we’ve always said that we don’t disclose it.
David Leibowitz - Burnham Securities
Well, I’ll keep trying. Thank you very much.
David D. R. Hargreaves
And we’ll keep giving you the same answer.
Operator
Thank you. Our next question comes from Gerrick Johnson.
You may ask your question and please state your company name.
Gerrick L. Johnson - BMO Capital Markets
Good morning. I want to ask you a little bit about your theatrical based entertainment licenses.
What percent of sales do those currently make up and how does that compare historically? And I have a few follow-ups.
Thanks.
Brian Goldner
Gerrick, as we said, on our boys business, which is primarily the theatrical licenses, we said that six initiatives this year could quite possibly equal the three from last year. We’re on track to achieve that objective.
In terms of what percent our licensed theatrical properties make of the total, we don’t report that. And clearly within that, of course, we have a good core brand performance from brands like G.I.
Joe in the quarter and Transformers, along with Star Wars, Indiana Jones, and the Marvel properties. So again, we won’t report specifics.
Gerrick L. Johnson - BMO Capital Markets
Okay. Would you say that it’s probably higher than it’s been in the past as a percent of sales?
David D. R. Hargreaves
I think one of the things that you can look at, there’s very little in our boys business which isn’t driven by theatrical, so again we will publish in our Q and we do disclose what our boys number is. And equally, there’s not a lot in our girls or in our preschool or in our games which driven, so without given you specific details, hopefully that helps.
Just look to see how our boys category is doing overall where most of that is theatrically driven.
Brian Goldner
And as we said, boys was up 12.9% in the quarter.
Gerrick L. Johnson - BMO Capital Markets
Okay, great, thanks. Now the adult collector, that’s a market you’ve been paying more attention to than some of your competitors.
How much a part of your boys business is that and how is the health of that market?
Brian Goldner
You know, we continue to develop product really for many different audiences simultaneously for product lines, like in brands like Star Wars, G.I. Joe, Transformers.
We have the great benefit of having sort of bimodal fans. We’ve brought new fans into Transformers over time, similarly with Star Wars, so we invest in R&D and in both categories for many different audiences.
Gerrick L. Johnson - BMO Capital Markets
Okay. Any idea of the health of the adult collector?
Brian Goldner
Well, we’ll be out at ComicCon later this week and certainly a significant presence there and we’ll continue to service our collectors. We really believe strongly in providing them great products and working with them to deliver the kinds of experiences they would want from our brands, and it goes to our goal overall of delivering immersive brand experiences for all audiences in the way that they would want it.
Gerrick L. Johnson - BMO Capital Markets
Okay, just shifting over to girls for a second, Littlest Pet Shop, you haven’t spoken much of. How is that performing, particularly versus your plan or your expectations?
Did you see growth in that one in the quarter and how are you looking at that for the rest of the year?
Brian Goldner
Littlest Pet Shop did contribute to growth in the second quarter and it’s across a number of different categories. It was up double-digits in the quarter by itself and it’s a combination of the traditional products, the collector characters, as well as playsets.
VIPs, we’ve had almost 2 million registered adoptions of VIPs online globally. Our VIP website has been done in 12 different languages across 20 countries already just since early this year, so again, well on track.
This fall we’re very excited because EA will come out with three Nintendo DS titles as well as a Wii title for Littlest Pet Shop, and that will all be integrated with our marketing efforts through the holidays.
Gerrick L. Johnson - BMO Capital Markets
Okay, great. Thanks a lot.
Operator
Thank you. Our next question comes from John Taylor.
You may ask your question and please state your company name.
John G. Taylor - Arcadia
Good morning. Brian, could you talk a little bit about the Star Wars merchandising strategy in the sense of is there going to be a street date and what kind of splash are we going to see when the movie comes out and anything you might call out about the fall in terms of retailer promotional stuff?
Brian Goldner
It’s late July, July 26th is the date, you’ll start to see products more formally out there, but again sort of shipping it at this point. You know, there are significant product line and promotion associated from Hasbro and from Lucas, as well as from their film and television partners.
And retailers are very excited about it and they are excited globally. We’ve been out in markets in Asia and -- I mean, in Europe and they are very excited so the launch on shelf again is July 26th.
John G. Taylor - Arcadia
Okay, and is that a global street date?
Brian Goldner
Yes, it should be a global street date.
John G. Taylor - Arcadia
Okay, good. And then David, on the mix of licensed products, some things obviously did better than others.
Is there any -- you guys are going to have to do or you have the opportunity to do any stock balancing to switch a stronger property out with another one -- any of that likely to go on this fall?
David D. R. Hargreaves
Well, I think we’re confident that everything we shipped in to support the movies will have sell out over the summer, some of it faster than others, maybe. When we come back in the fourth quarter to support the DVD releases, we’ll have obviously remixed to reflect the relative strength of the movies [in the stream].
John G. Taylor - Arcadia
Okay, good. And then in terms of margin, so you’ve been able to protect gross margin pretty well.
Is there -- could you call out any differences in margin increases or price increases by segment? I guess what I’m looking for is did pretty much all major segments rise or were there some that were sort of -- where the increases kind of subsidize lesser increases in other segments?
David D. R. Hargreaves
No, I mean, we’ve taken -- not in every product but basically across most of our lines, take -- which we make domestically as well as on toys which come from the orient, so to some extent, we’ve tried to take pricing where we don’t disrupt the market or break price points, and so we’ve taken it across the whole range, where we think we can not create any reduction in demand as a result of it.
John G. Taylor - Arcadia
I can imagine that’s a pretty complicated thing. I guess what I’m looking for is is there a segment that is sort of helping prop up any of the others, where maybe there might be a price point, glass ceiling kind of thing?
David D. R. Hargreaves
I don’t think there’s any particular segment I could point to. As I said, more of these price increases have been on our toy side of the business than on the game side, but we have selectively taken some pricing on games as well.
John G. Taylor - Arcadia
Okay, good. And was there any P&L impact of the step away from securitization of your receivables, meaningful?
David D. R. Hargreaves
There probably was a very small impact because the cost of discounting receivables on securitization gets in an admin expense, whereas the interest expense on the revolver gets into non-operating. But that’s very small.
John G. Taylor - Arcadia
Okay, and then last question -- what’s going on with the mix of your Transformers movie related product versus non-movie, this year versus last year? If you could talk about that a little bit.
Brian Goldner
Well, thus far in the year, it’s been a lot of Transformers movie product. We’ll begin and have in the second quarter begun shipping the Transformers animated product.
The series has been on the air since the beginning of January this year and is performing very well, so we’re looking forward to the animated product hitting shelves here in the U.S. It’s already begun hitting shelves in several markets around the world.
John G. Taylor - Arcadia
Okay, great, and let me sneak one more in, if I can; were there any stock buy-backs in the quarter?
Deborah Thomas Slater
Yes, there were. We bought back 1.6 million shares in the quarter.
John G. Taylor - Arcadia
Okay, and what did you spend on that?
Deborah Thomas Slater
We spent about $51 million.
John G. Taylor - Arcadia
51?
Deborah Thomas Slater
Yes.
John G. Taylor - Arcadia
Okay, great. Thank you.
Operator
Thank you. Our final question comes from [Gopal Amari].
You may ask your question and please state your company name.
Gopal Amari - Cars Capital
Good morning, guys. [Cars] Capital.
A quick question on Marvel, just to check -- was that up sequentially and on an aggregate basis? Hello?
David D. R. Hargreaves
I’m not sure if you are talking about second quarter versus first quarter or if you are talking about the second quarter of this year versus the second quarter of last year. If you are talking about the second quarter of this year versus last year, it was up, yes.
Gopal Amari - Cars Capital
Okay. Was it up double-digits?
David D. R. Hargreaves
Yeah, Marvel has been strong and it was up double-digits in the second quarter this year versus the second quarter last year.
Gopal Amari - Cars Capital
Okay, thanks.
Operator
I will now turn the call over to the speakers for final closing.
Karen A. Warren
Thank you, Shirley. Thank you, everyone, for joining the call today.
A replay of our call will be available on our website after 2:00 p.m. Have a good day.
Operator
This does conclude today’s conference. We thank you for your participation.
At this time, you may disconnect your lines.