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Hasbro Inc (HAS) Q1 2019 Earnings Call Transcript

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Hasbro Inc  (NASDAQ: HAS)
Q1 2019 Earnings Call
April 23, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Hasbro First Quarter 2019 Conference Call. At this time, all parties will be in listen-only mode. (Operator Instructions). Today's conference is being recorded. If you have any objections, you may disconnect at this time.

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

Debbie Hancock -- Senior Vice President of Investor Relations

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. During the first quarter, we realigned our segments and began reporting the digital gaming revenue associated with our Wizards of the Coast brands, including Magic: The Gathering Arena and several other games and the renamed entertainment licensing and digital segment.

As a result, for the first quarter of 2018, $10.4 million of digital gaming revenues and $3.2 million of operating profit were reclassified from the US and Canada segment to the entertainment licensing and digital segment. The full year 2018 revenue reclassification is expected to be approximately $58 million.

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 managements' 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.

Those 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?

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

Thank you, Debbie. Good morning everyone and thank you for joining us today. The global Hasbro team delivered a good quarter and start to the year. Revenues increased 2% and absent a negative $24.3 million impact of foreign exchange, grew 6%.

New initiatives and innovation overcame tough comparisons with last year's first quarter. Our long-term investments in growth opportunities provided a meaningful contribution from our digital and esports initiative Magic: The Gathering Arena, as well as growth in Magic: The Gathering tabletop revenues.

Additional gains came from several other brands including franchise brands PLAY-DOH, TRANSFORMERS and MONOPOLY. We are beginning to see improvement in our commercial markets, notably in the US and Europe. In Europe, revenues grew 8%, absent the impact of foreign exchange. For the full year, we continue to expect revenue stabilization as well as profit improvement for the region and the first quarter is in line with this plan.

Point of sale comparisons will remain challenged through the first half of the year as Toys-R-Us moved into liquidation in the US during week 11 late in the first quarter of last year. In addition, Easter was later this year shifting from the first quarter into the second quarter. Absent Toys-R-Us, global point of sale for the quarter was down approximately 10% and in line with our expectations.

As consumers began Easter shopping and new initiatives came on shelf, including Nerf Fortnite and Hasbro's line for Marvel Avengers End Game, point of sale improved, posting positive Easter to Easter comparisons in the US. Retail inventories are of good quality and good levels, increasing in certain markets and brands as retailers prepared for Easter and new launches in April, including several entertainment initiatives as well as Hasbro's Power Rangers line launch in North America.

Throughout the quarter, the global team did an excellent job managing expenses, and we began to see the benefit of our cost savings initiatives. We delivered operating profit in the quarter, and EPS of $0.21 per share. While most of the years are ahead of us, we remain on track to deliver profitable growth for the full year 2019.

Our outlook is anchored in the innovation and execution around higher margin growth opportunities in key brand initiatives, many of which launched later in the year. We're leveraging our expertise in brand portfolio to drive unique gaming experiences. This kicked off with great success at our premier Magic: The Gathering Mythic Invitational at PAX East in March. John, Deb and I were on hand to see the team lead a tremendous event, which generated 2.7 million viewer hours on Twitch and paid out a $1 million prize pool.

Engagement with Magic: The Gathering is growing in both digital gaming and analog tabletop. In store player growth increased double-digits and grew at an even higher rate for new players. The latest Magic card set, War of the Spark was unveiled at PAX East and drove over 10 million views of the trailer, shattering the previous record.

In stores in early May, War of the Spark is currently available for digital pre-order in Magic: The Gathering Arena

and launches this week. Magic: The Gathering Arena is performing well with over 700 million games played to date during the open beta with the average player spending eight hours per week in the game. We'll be further supporting the game with additional tournaments and marketing support as the year progresses.

As discussed at Toy Fair, we're also expanding the Magic: The Gathering franchise to reach a broader audience through an entirely new game designed for mobile. The team launched this game Valor's Reach into test markets during the first quarter.

In our face to face gaming portfolio, MONOPOLY is coming off a record year and continue to deliver growth based on insight driven innovation and on-trend additions. MONOPOLY cheaters edition and MONOPOLY Fortnite are performing well. MONOPOLY for millennials is rolling out globally, building off its success in the US, and we recently launched our Game of Thrones addition, which is off to a good start, as the hit HBO show enters its final season.

In addition to our unparalleled gaming portfolio, we are building on the growing popularity of gaming across all formats around the world. This includes leveraging our industry leading position with Nerf for our gamer series. We launched Nerf Fortnite late in the first quarter and it is off to a very strong start at retail. This new line joins Nerf Overwatch within our new gamer initiatives this spring.

Throughout the year, the Nerf team has incredibly innovative line across price points, backed by compelling digital first marketing and campaigns. Nerf Fortnite launched exclusively on Hasbro Pulse with pre-orders in February and then rolled out to retailers.

Hasbro Pulse is a one-stop destination to engage directly with our target consumers and deliver social media engagement, product development initiatives, content and commerce for fans. To further our digital-first consumer approach, we added a strategic position during the first quarter with the appointment of Jamie Gutfreund to the newly created role of Chief Consumer Experience Officer or CXO. Reporting to John Frascotti, Hasbro's President and COO, Jamie will oversee global marketing with a directive to further build deep connections between Hasbro's brands and global consumers.

Jamie joined us last week from Wunderman Thompson, where she served as Global CMO and helped to establish the firm's reputation as a dynamic global digital organization.

Our investment in digital first innovation and storytelling has kept us as the number one toy and game Company in the US and Canada on Amazon according to edge market share. A recent example of how we leveraged our social channels to deliver content to commerce programs comes from Star Wars Celebration where we drove strong pre-orders for our exclusive Emperor Palpatine Black series figure and The Black Series Luke Skywalker Electronic X-Wing Pilot Helmet, Star Wars: The Rise of Skywalker is coming to theaters on December 20th and with the first Star Wars live-action series, The Mandalorian, premiering on Disney+ on November 12th, and the Galaxy of Adventures animation for kids on multiple platforms, we will be supporting Star Wars extensively with new Hasbro product on shelf from October 4th, as part of Triple Force Friday.

While our Partner Brands' revenue was down in the quarter, robust entertainment for these brands builds throughout this year. In addition to Star Wars, Marvel's upcoming 2019 theatrical lineup includes the highly anticipated Avengers: Endgame later this week, and Columbia Picture's, Spider-Man: Far From Home, in July.

We're also very excited about Marvel's entertainment initiatives in support of kids and fans across key platforms like Disney+, Disney XD and Marvel HQ on YouTube. For Disney Princess, we have an all-new line at retail, based on the new look from Ralph Breaks the Internet, as well as Aladdin products, supporting the upcoming May film.

In addition, Hasbro's expansive line for the highly anticipated Frozen 2, will be on shelf October 4th for the November film. Also within the partner brand portfolio, Beyblade continue to perform well, leveraging new innovation and episodic programing to deliver another quarter of revenue and point of sale growth. Storytelling across platforms is essential to building immersive brands. Bumblebee, currently available in home entertainment along with our pre-school kids and fan-oriented content is driving revenue and point of sale growth for the Transformers brand.

Equally important, it is successfully introducing Transformers to a new generation of kids and reengaging our core fans around the world. As we look ahead to the remainder of 2019, there's a lot of work to be done. Our teams are engaged and focused to deliver on our plan for profitable growth this year.

Now, I'd like to turn the call over to Deb. Deb?

Deborah M. Thomas -- Executive Vice President and Chief Financial Officer

Thank you, Brian. And good morning everyone. The team turned in a good start to the year, delivering revenue growth against a difficult comparison with last year and executing to deliver operating profit in the quarter. Hasbro is in a strong financial position with the ability to invest in our business for long-term growth, while managing costs and delivering on our planned net cost savings of $50 million to $55 million for the year.

We ended the quarter with $1.2 billion in cash while returning a $128.5 million to our shareholders through our dividend and share repurchases. An 8% increase in the quarterly dividend takes effect for our next payment in May.

Within our segments, revenues in the US and Canada segment increased 1% behind growth in franchise brands including Play-Doh, Magic: The Gathering, TRANSFORMERS and MONOPOLY as well as growth in Hasbro Gaming and emerging brands. This growth was partially offset by declines in the partner brand category. We ended the quarter with good levels and good quality of inventory at retail. It's still early in the year, but we're encouraged by the positive signs in the business.

Segment operating profit for the quarter was $13.5 million. Last year's first quarter included $52.3 million of expenses associated with ToysRUs, which was primarily bad debt and we reported a loss of $26.6 million. Adjusted operating profit last year was $25.7 million. The segment's operating profit in 2019 was adversely impacted by product mix, higher intangible amortization associated with Power Rangers and start-up expenses in opening a new US warehouse, as well as investing in the Wizards of the Coast Gaming brands.

International segment revenues declined 2% including a negative $23.4 million impact of foreign exchange. Excluding FX, revenues in this segment increased 6% and were up in Europe, Latin America and Asia Pacific. Hasbro Gaming and emerging brand revenues increased. Franchise Brand revenues were flat as reported, but increased excluding foreign exchange.

Partner brand revenues declined in the quarter. The international segment reported an operating loss of $30.4 million compared to a $56.1 million operating loss last year, which included $11.2 million of expense associated with ToysRUs.

The adjusted operating loss for last year's first quarter was $44.9 million. The smaller operating loss this year was driven by higher sales volumes, the benefit of cost savings, lower royalties and beneficial cost translation rates. This was partially offset by higher intangible amortization.

Finally, as Debbie mentioned earlier, we have renamed our Entertainment and Licensing segment as Entertainment, Licensing and Digital. We reclassified revenues of $10.4 million and operating profit of $3.2 million from the US and Canada segment related to 2018.

Reflecting this, segment revenues grew 24% this quarter. This was driven by revenues from Magic: The Gathering Arena as well as consumer product licensing. Operating profit increased to $30 million or 32.6% of revenues driven by the higher revenue and lower amortization for film and television. This was partially offset by continued investments in the business, including in digital gaming initiatives for Magic: The Gathering.

Overall, Hasbro operating profit improved to $36.1 million or 4.9% reflecting higher revenue, a favorable contribution from our cost saving activities, lower stock compensation and good expense management. Several of our expense categories were essentially in line with last year, however, royalty expense declined to 8.2% of revenues versus 9.7% last year.

As a reminder, we incurred accelerated expense associated with ToysRUs in this line during the first quarter last year and the adjusted rate was 8.7%. The decline in royalties reflects lower partner brand revenues in the quarter. Intangible amortization increased to $11.8 million, as forecasted reflecting the Power Rangers acquisition.

Program amortization declined as we amortized less television and film expense this year versus last year, which included My Little Pony: The Movie production expense. Advertising increased to 10.5% of revenues versus 9.5% last year. We forecasted advertising to increase for the full year behind the launch of digital gaming initiatives, including substantial marketing and esports expense throughout the year.

We continue to expect full year advertising expense in the 10% range. Last year, we recorded $59.1 million of bad debt expense related to ToysRUs in SG&A. Excluding this expense, SG&A declined approximately $25 million reflecting the early benefit of cost savings, lower stock compensation expense, good cost management by our teams and a favorable impact from foreign exchange.

At the same time, we have start-up costs for new US warehouse and invested in our Wizards of the Coast business. Turning to our results, below operating profit, other income increased slightly, primarily due to a larger gain on foreign currency transactions and higher interest income. Our underlying tax rate for the quarter was 18.5% versus 16.5% last year. The rate reflects a mix of jurisdictions where we earn profits and the impact of tax reform, and is in the range of our full year underlying guidance of 17.5% to 19%.

Including discrete items, the first quarter's effective tax rate was 9.7%. We have recognized one-time events over the past two years, that have provided considerable benefits to substantially lower our effective tax rate. Based on what we know today, we do not expect the impact of discrete events to be as significant as they were in 2018.

For the first quarter, earnings per share was $0.21. Our balance sheet is strong and we ended the quarter with $1.2 billion in cash. We returned $79.3 million in dividend payments and $49.2 million in share repurchases. During the quarter, as outlined in our Power Rangers acquisition agreement, we paid $87.5 million to Saban Properties. $12.5 million remains in escrow and will be paid out during the second quarter.

Receivables increased 4% and days sales outstanding were 79 days, up one day from 78 days last year. Inventories decreased 5% and were essentially flat with a year ago, absent the impact of foreign exchange. The quality of our inventory both on hand at Hasbro and at our retailers is good.

Retail inventory in certain brands and markets increased in the first quarter ahead of Easter and several new initiatives launching during the second quarter. Finally, effective January 1st of this year, we adopted the new lease accounting standard. As a result, we recorded operating lease right-of-use assets and operating lease liabilities on our Consolidated Balance Sheet as of March 31st, 2019.

The adoption of this standard did not have an impact on our Consolidated Statement of Operations or Consolidated Statement of Cash Flows for the quarter.

In closing, we are pleased with the start to the year. The team did a fantastic job driving revenue growth and managing costs. We will remain focused on both throughout the year as we support the new entertainment and brand initiatives coming to market over the course of the coming quarters. We will now open up the call for questions.

Questions and Answers:

Operator

Thank you. We'll now be conducting a question-and-answer session. (Operator Instructions). Thank you and our first question comes from Stephanie Wissink of Jefferies. Please proceed with your question.

Stephanie Wissink -- Jefferies -- Analyst

Thanks, good morning everyone, and a nice start to the year.

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

Good morning, Steph.

Stephanie Wissink -- Jefferies -- Analyst

A question for you Brian, really on the cadence of the quarter when we were together at Toys Fair, I think your outlook for the quarter was maybe a bit more muted versus what you delivered. So can you talk a little bit about the areas that vested your plan, how you motivated the team to really take advantage of some of the opportunities?

And then how should we think about the momentum in the business, is this the start or are you coming in a bit better than what you had expected, so we should think about the first half as being a bit more lateral? If you can just help us with the quarterly progression, that'd be great. Thank you.

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

Sure. Well, we did have a number of headwinds going into the year that we had spoken about, $26 million in Toys-R-Us shipments for the first quarter of last year, a shift of Easter to the second quarter, and of course last year, Black Panther had performed incredibly well during the first quarter.

Having said that, the team has done a very good job of growing our brands in the quarter. We saw growth in the franchise brands in gaming and emerging brands, and we expect to see our partner brands begin to accelerate as we enter the second quarter. We've already seen Avengers performing well over the counter. As we head to the movie this week later in the year and early in the third quarter, we'll have the Spider-Man movie, and so again the entertainment progresses throughout the year and we're supporting our entertainment brands across a number of dimensions.

We've also seen some really good progress in Europe, but I would encourage you to again, think about our full year belief about getting back to profitable growth, and we'll see more new initiatives coming throughout the year. This is always a small quarter for us, we're very encouraged by what we're seeing, it's a bit more revenue than we'd expected and we are seeing the early signs of that acceleration in Magic: The Gathering in both Arena as well as Tabletop revenues both being up in the quarter.

We're seeing a number of new in store players as well as new players and so that also bodes well for that brand, for the year and beyond.

As we look at POS, and we take a year-to-date POS through both years and to-date, we're seeing that overall POS is down in the low single digits. So we did see an acceleration of POS. Easter-to-Easter POS was up in the mid-single digits, and so again the progress is really starting to take hold in the second quarter. So we think the cadence of our business is as we described it earlier in the year, we are very committed to returning to profitable growth and we think we're off to a very good start, the team has done a very good job around the world.

Stephanie Wissink -- Jefferies -- Analyst

Thank you, Deb could I throw in one more? Just on the $58 million of reclassification, are you willing to give us that by quarters just for our (ph) models, so we can twitch the revenue line?

Deborah M. Thomas -- Executive Vice President and Chief Financial Officer

I think the team is working on that right now and when we have it available, we'll disclose it. But right now, just to put it in perspective, it was about $10 million in the first quarter, which we had talked about, we reclassified and it will be $58 million for the full year and the businesses is not as -- it's not as cyclical perhaps as the rest of our business, but in the first quarter obviously, it made a bigger difference just because it's the first quarter and it's a low revenue quarter.

Stephanie Wissink -- Jefferies -- Analyst

Okay, thank you.

Operator

Our next question is from the line of Arpine Kocharyan with UBS. Please proceed with your question.

Arpine Kocharyan -- UBS -- Analyst

Hi, thank you very much. So entertainment and licensing revenue was quite strong, would you be able to break down what was consumer product licensing contribution for the quarter and maybe pick a chance to kind of run through a quick -- kind of how lumpy this revenue stream can be and how we should think about quarter-to-quarter cadence?

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

The lumpiness we normally would see in that quarter would be in the areas of film and television as we get paid for certain streaming income and certain streaming revenues as we deliver episodes typically. The rest follows cadence off of entertainment we just talked before about the consumer products licensing revenues coming after entertainment initiatives by the Company as we collect the royalties and can -- count royalty income that comes into the Company.

And we did see good progress in consumer products this quarter, we've obviously had some great entertainment that has come over the last few quarters, and notably in Bumblebee and other -- in other brands.

And then as we go forward, we expect that the new digital delineation will be important, as brands around Wizards of the Coast continue to grow, we've talked about a number of initiatives that the brands intend to execute over time, not just Arena. We have a new game in test market in the first quarter that's more of a casual mobile game, Valor's Reach and we expect to continue to see revenues in that area.

We're not going to break out the revenues by each area, but suffice it to say that digital gaming was up, consumer products and of course we talked about the first time, we're reporting Arena and other games from Wizards of the Coast separately and ELD (ph).

Arpine Kocharyan -- UBS -- Analyst

Great, thank you. And then in terms of the Magic: The Gathering transitioning out of beta mode, do you have any updates on the timing of that? I think you've said before, by end of Q2 or potentially in the first half, which today means I guess end of sort of Q2. Is there any updates to that?

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

No, there's no real update thus far. We were very happy to see our Mythic Invitational at PAX East perform so incredibly well and the momentum around the game is palpable. It was great to see the fans enjoying the tournament and then also to see the response to War of the Spark and the new storytelling that comes in Q2 this year both in cards as well as on Arena, and I think the lineup and how they've synchronized the storytelling between the two platforms is really helping us as we do engage more players in tabletop as well as in the Arena game.

And so I'm really looking forward to quarters to come and years to come around Magic: The Gathering both Arena and Tabletop.

Arpine Kocharyan -- UBS -- Analyst

Thank you. And then one quick clarification, Brian, you mentioned, low single-digit increase in POS. Was that excluding Toys-R-Us or including Toys-R-Us?

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

Excluding Toys-R-Us.

Arpine Kocharyan -- UBS -- Analyst

Excluding Toys-R-Us. Thank you very much.

Operator

The next question comes from the line of Drew Crum with Stifel. Please proceed with your question.

Drew Crum -- Stifel -- Analyst

Okay. Thanks, good morning everyone. So, Brian, you indicated you're starting to see some improvement in your commercial markets including Europe and that's usually (ph) reflected in the first quarter results, but it doesn't seem to be suggested in your commentary for sales performance for the year, so maybe if you could discuss that further and was Europe profitable during the quarter?

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

Yeah, Europe has seen profit improvement in the quarter in a substantial way. We've seen a number of markets perform above a year ago and we're seeing a lot of progress in markets like France, Germany and Russia and Spain, reengaging consumers with new initiatives and the performance there was quite good.

The reason we continue to talk about stabilization is the fact that revenues did grow 8% in the quarter, but were down 1% as reported obviously, FX will have an impact throughout the year as we've seen in the first quarter. Also, I know it's limited data, it's only a first couple of months, but thus far according to NPD, Europe is down and also UK is down even more sizably.

So we want to continue to see progress in those markets we've seen progress in the UK, we're clearly seeing great progress across the European business, the team is doing a great job in on boarding new capabilities and engaging across a growing array of retail footprint and new retailers, which is fantastic, we're seeing that around the world as we continue to expand the retail footprint and we are seeing growth in new retail channels as well as growth with some of our mass market partners and online.

But, again, it's early days and we feel that we're making the kind of progress we expected to make and the team is doing a great job.

Drew Crum -- Stifel -- Analyst

Okay, got it. And then just one other quick one Deb, $49 million of share repurchases during the quarter seems to be pacing well ahead of your guidance for the year, is there any change in terms of what you expect to repurchase in 2019?

Deborah M. Thomas -- Executive Vice President and Chief Financial Officer

Yeah, we still expect to repurchase between a $100 million and $150 million, obviously subject to market condition. And during the first period, again just within our -- you know, we put a grid in place that we repurchased up too. We just hit that amount, within the grid, which is based on market conditions, but no change to our guidance for the full year.

Drew Crum -- Stifel -- Analyst

Okay, thanks guys.

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

Thank you.

Operator

The next question is from the line of Felicia Hendrix with Barclays. Please proceed with your question.

Felicia Hendrix -- Barclays -- Analyst

Hi, thanks and good morning.

Deborah M. Thomas -- Executive Vice President and Chief Financial Officer

Good morning, Felicia.

Felicia Hendrix -- Barclays -- Analyst

Hi, I just wanted to return to Steph's question that was asked at the beginning. And you know, Brian, you highlighted the various drivers to the quarter in your answer, but I think what a lot of us are, you know, just wanting to understand better is, what was the biggest surprise in the quarter because you were pretty clear at Toy Fair that you'd be down for the reasons that you reiterated, but what was the biggest delta between your budget and actual? Was it basically the strength in Europe or was it different products domestically and -- just can you help us understand that?

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

Yeah, sure, while we've seen really good momentum in Transformers and we saw growth in the quarter, we've also seen a reengagement of our fans and as well, engaging kids, the home entertainment has been very strong for the brand, and we're seeing great progress there.

Overall, our franchise brands grew quite substantially and PLAY-DOH was off to a good start. MONOPOLY continues to perform at a high level, and then of course Magic in Magic Arena is doing really well in early days and that's certainly a strong contributor to growth in the quarter.

And yeah, we had expected to have advertising, marketing and additional spending around esports come later in the year. So our expectation was some more of those revenues might come around more of those type of initiatives as we get broader and we launch and go from open beta. We've just seen great progress and great engagement with the game. And I think that those are some of the -- some of the key drivers, and then there are brands underneath those brands that are also growing, some growth in games and other key brands across the portfolio.

But I think that that's clearly been one of the key drivers is the growth of franchise brands. Europe has made good progress and we're very pleased with what the team has accomplished there, and yet, it's still early days, and so our expectation for the year continues to be profitable growth, and certain brands are ahead of our expectations.

Deborah M. Thomas -- Executive Vice President and Chief Financial Officer

We also saw some earlier benefit from cost savings than we had expected, and just good expense management by the team, we're all very focused on the fact that the first quarter is a small quarter and slight differences can have an impact. Some of our expenses as Brian mentioned shifted out and overall on a full year basis, we still think that the guidance that we gave at Toy Fair is still in line with the full year. It's just in a small quarter when you're focused on having some of those things, they can make a difference even to go from a loss to a profit.

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

And it is good to see the progress the team is making against a loss of Toys-R-Us.

Felicia Hendrix -- Barclays -- Analyst

Right. And then, yeah, I want to get to that in a second, but just if you had to size it for all the things that you just listed, it was like Magic the biggest surprise or is that just one of the many that you listed out?

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

Yeah, look, I think it's great to start a year with the growth of franchise brands and the growth of Magic, and I think one of the conversations we've had has been as Arena has come to the floor, what would happen to tabletop and what's heartening to me is to see the engagement the team is creating in-store and with new players, the kinds of new card releases that they're putting out in addition to some of the story led releases like War of the Spark, are really engaging players in store and giving them an easier on ramp to learn the game.

And that's really taking hold, and Transformers, it's great to see that in addition to a great box office and very strong performance in China within the global box office to see the home entertainment performance such a high level, to see our business across multiple dimensions performing. We have the additional content from kids, our core audience as well as the fan-oriented content, all driving growth and engagement in that brand.

A new approach to PLAY-DOH that includes online, social and entertainment, that's really taking hold, and some new innovation there. Our wheel segment to get down a little closer to the Earth so to speak, and PLAY-DOH was off to a very good start, so new ways to play with the brand and throughout the year, you're going to see new innovation. So it's great to see the momentum the team is creating early in the year.

Felicia Hendrix -- Barclays -- Analyst

That's really helpful. And then just talking -- getting to the retail landscape, so we're obviously well out of the holiday period and Walmart and Target had shrunk their shelf space for toys. We are still seeing toys in the kind of alternative retail channel, if you will, but with the kind of -- Walmart and Target kind of getting more to like a normalized spread of toys in their stores and Toys-R-Us gone, can you just talk to us about where you're making up that difference the most in the non-holiday times of the year?

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

Sure, well first, we're seeing continued growth in online revenues there were increased in the high single digits in the quarter, both pure play e-com is up and our Amazon business continues to be up, but we're also seeing growth in sales around WalMart and Target and others.

In Q1, we also saw the fan grocery drug club department stores and convenience channels posting revenue growth, and then what's also interesting, we talked about that Toys-R-Us was no longer in the US but around the world toy specialty had taken hold, and if you exclude Toys-R-Us, Toy specialty was also up in the quarter.

And so whether it's Smyths toys in Europe, or new Toys-R-Us ownership in certain regions, we are seeing momentum there. I mean there are a couple of areas where we're yet to see that momentum -- in the Pacific markets like Australia, we're still not seeing the growth in that market according to NPD because of the loss of Toys-R-Us.

And there are few other markets like the UK that still are down across the industry, but we're making good progress there to recapture share, and so I think we talked about the objective of the share recapture last year. We had said that we'd seen more share shifts through the holiday period versus share recapture. Now we're starting to see that share recapture that we had intended to create. We're seeing a lot of merchandising for our products around our franchise brands and gaming, as well as our partner brands coming into the year and so more linear footage from non-traditional areas, but certainly great core partnerships as we go forward with retailers and it's really great to see.

Arpine Kocharyan -- UBS -- Analyst

That's great, thank you very much.

Operator

Thank you. The next question is from the line of Michael Ng with Goldman Sachs. Please proceed with your question.

Michael Ng -- Goldman Sachs -- Analyst

Great. Thanks for the questions. My first one is just on the Transformers strength. You guys have had two consecutive quarters of growth now, do you think we could get growth in the overall Transformers brand in 2019 despite not having a movie this year?

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

You know, the team has created lots of demand around that brand in new and different ways. Going forward we're breaking ground on new media models in partnership with people like or companies like Netflix where we'll have a whole new entertainment initiative coming next year, clearly the streams of content that we have have really enabled our brand to step forward, you know, I'm not going to comment on one year versus another, but I do think that the way we're approaching Transformers is really benefiting us.

Our fan business is quite strong, this is where our initiative like Hasbro Pulse is also taking hold, and we've seen really good early results there where we've offered either first to market or exclusive product really engaging our fan. We do believe that fan economy is quite strong, so Transformers is one of our biggest fan-oriented brands in the Company.

And we continue to want to drive fan business behind Transformers and Star Wars and Marvel and Princess and even My Little Pony. But for Transformers, it's clearly benefiting the brand. So as we go forward, we're starting to work on the next movie, but there's plenty of content coming for that brand over time.

Michael Ng -- Goldman Sachs -- Analyst

Okay, thank you. And then just on the MTG, digital gaming revenue classification, it seems to imply a lot of that reclass comes later in the year, is it right to describe that the first nine months of that MTG digital revenue in 2018 mostly are exclusively non-arena products and then all the arena revenue was really just in the fourth quarter?

Deborah M. Thomas -- Executive Vice President and Chief Financial Officer

Yeah, I think we've had Magic online for quite a while. If you go back, it just wasn't a material part of the segment as we reclassified it, I think you'll see most of the revenue from 2018 coming from other digital products, rather than Arena.

Michael Ng -- Goldman Sachs -- Analyst

Great. And then Arena was only in the fourth quarter, if -- right?

Deborah M. Thomas -- Executive Vice President and Chief Financial Officer

We started to pick up a bit of revenue from Arena in the fourth quarter, but don't forget we went into open beta kind of...

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

... In September.

Deborah M. Thomas -- Executive Vice President and Chief Financial Officer

Yeah, within the fourth quarter and then started charging within that so...

Michael Ng -- Goldman Sachs -- Analyst

Okay, great, thank you very much.

Operator

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

Timothy A. Conder -- Wells Fargo -- Analyst

Thank you, and thank you for the color so far. One thing just and you've reiterated this early here in the year and obviously on a small quarter things get magnified either way, but wanted to check if your timeline, in the -- and getting back to your 2016 operating earnings margins, is that still as expected and you said you're still looking for this year to be expected, but any change in that timeline at this point given the early success in several areas?

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

We've said that if we had a number of things break right for us, we felt that 2020 could be like 2017, and we continue to believe that. Again, we are making good progress, it's great to see the momentum coming out of the first quarter. I think many people have asked and wondered whether the Company would grow absent ToysRUs or how it would grow, and so we wanted to demonstrate that we're going to grow this year in a profitable manner, and then the team has done a great job in finding new retailers and new points of distribution and new modalities to sell around the world and it's great to see many of the new capabilities and approach in Europe taking hold as well.

So, again, early days, but we believe that 2020 can look like 2017 as a few things break right for us.

Timothy A. Conder -- Wells Fargo -- Analyst

Okay, and then -- and then you, you've commented on Europe and other international areas with one exception, just wanted to visit was Latin America, how has that trended, it had little bumps over the last year or so there and how is that looking at this point early on?

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

Yeah. Latin America, overall is looking good, it's growing obviously better growth absent ForEx, POS was up clearly a market that had less of an impact from the shifting ToysRUs tides and we do have a toy specialty down there in markets. Our emerging market business, which would include Brazil was up in the quarter absent foreign exchange.

So, again making some progress, Brazil is not completely in the clear, but we are seeing a substantial progress versus where we were a year ago.

Mexico has performed at a very high level, and other markets up and down in the quarter.

Timothy A. Conder -- Wells Fargo -- Analyst

Okay, great, thank you for the color and congrats on the good start.

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

Thanks, Tim.

Operator

The next question is from the line of Eric Handler with MKM Partners. Please proceed with your questions.

Eric Handler -- MKM Partners -- Analyst

Yes. Thanks for taking my question. Two questions for you. First, wonder if you could dig in a little bit more on Magic: The Gathering, you saw a pretty sizable spike in viewers on Twitch during the tournament during PAX East, it has since settled down, I think we've got a new PAX release coming up in the next week or so, how do you sort of look to shape your marketing over the next couple of quarters to sort of keep demand or at least interest in the game elevated.

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

Well, you know, first, it's really heartening to see that more than 700 million games have been played thus far in the open beta on average, people are spending about eight hours per week. In Q1, we did more than double the viewer hours on Twitch for the Magic brand, and now Magic Arena is a top ten esports brand. In fact it's about number eight. It was top three, four during the Mythic invitational event in that week end.

Our KPIs across the board continue to progress in terms of retention, engagement monetization and the game does officially launch later this year, recognize we had a $1 million tournament, we've said this year we would have a $10 million prize pool.

So we still have more -- the majority of the money to spend the rest of the year, as well as a bulk of the advertising and marketing related to going beyond the core fan to engage new fans that we're seeing coming to stores and starting the trial the game online. But that's our intention is to continue to build this as a very watchable, very engaging brand for gamers of all ages, and it's exciting to see -- early days and exciting to see.

Eric Handler -- MKM Partners -- Analyst

Okay. And then secondly, I wonder if you could talk a little bit about how much of a correlation there is between the revenue of a movie that you're doing the licensing with and toy sales specifically, Avengers looks like it could be an $800 million global weekend and probably over $2 billion of revenue of box office revenue for the film. Wondering how that might impact toys and then particularly China where BumbleBee was quite big there early in the year and now we're looking at a $200 million plus opening in China as well for the Avengers, how China might look this year versus last year?

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

Yeah, China in the first quarter was up and for the Company and the POS looks good as well. For Avengers, we're incredibly excited. It's very early days, if you recall, last year we had begun merchandising Avengers Infinity War a few weeks earlier, in early March versus later in March this year.

So we have about a three week or a four week shift in timing. But early days last two, three weeks have been very strong, Marvel has historically been a key driver of our business and we're supported fully across every dimension from kids through fans and families.

We're also focused on pre-school, our Mega Mighties in that area of our business this new initiative from the team is off to a very strong start. So we're focused on the preschool business as well with the new innovative products for pre-schoolers. But we feel that Marvel and Avengers is going to have a very big year and you're right, China is a part of that equation.

For Bumblebee, it goes beyond the movie to overall Transformers, it's one of the more beloved brands in China. We're very happy to be in partnership with CCTV, on a television episodic program that will go on air later this year in prime time on national television called Transformers-Nezha it's based on a combination of Transformers and Chinese mythology, but the entertainment looks so good that broadcasters around the world are starting to say, this could be something we'd take out globally and we're very excited about continuing to build that relationship with CCTV, other relationships with Tencent, between Magic and things we're doing in our entertainment business, they were part of the funding of the BumbleBee movie and it's very exciting to see what's possible in China.

And again still early days after a number of years.

Eric Handler -- MKM Partners -- Analyst

Great, thank you.

Operator

Next question is from the line of Ray Stochel with Consumer Edge. Please proceed with your questions.

Ray Stochel -- Consumer Edge -- Analyst

Great, thanks for taking my question. How are initial shipments of Power Rangers products performing? And how would you characterize the performance of Beast Morphers so far? And then if you could also give us an update on Nerf and any innovation in the pipeline that we didn't see at Toy Fair that you can give us on Nerf at this point. Thanks.

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

Sure. Well, the launch of Power Rangers is starting in North America, the line launch there, we had some product shipped in Q1, but limited, it will roll out in the subsequent quarters, both in North America and around the world. I'm very pleased with the ratings of the new show. It's a ratings leader and its time slot is offering a very strong lead out, and Nickelodeon has been a very good partner in helping us to market the new series. The team has done a great job in producing this transition from a Saban to our own studio has been seamless, and I give the team a lot of credit for producing such a high quality show that's really beloved by kids and improved in a number of ways from the last production.

So we're obviously very excited about Power Rangers, not only for this year and nine months, but for 2020 as we will have a full year impact. So very good there.

And the second question?

Ray Stochel -- Consumer Edge -- Analyst

The follow-up was on Nerf, and if you could give us an update on Nerf and then any innovation in the pipeline that you couldn't give us at Toy Fair?

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

Sure. So on Nerf, really excited to see the takeaway on Fortnite, that initiative now is rolling out around the world, but in the US over the last three weeks and then going into Europe has been very strong. So it's great to be able to play the game in real life, and I think people are really responding to all of the marketing and content that's being created around that by us and by fans.

Later this year, the team has an array of new initiatives and innovations coming. We've talked about covering multiple price points and providing innovation and high quality product at every price point and you will see that and that's about all I'd say at this point, but stay tuned, it's a very exciting line up for Nerf not only for '19, but 2020 and beyond.

Ray Stochel -- Consumer Edge -- Analyst

Great. Thanks again.

Operator

The next question is coming from the line of Linda Bolton Weiser with DA Davidson. Please proceed with your questions.

Linda Bolton Weiser -- DA Davidson -- Analyst

Hi. Just, you know, on the cost side, I believe you said the SG&A expense was down $25 million year-over-year. Is there any way you can quantify how much of that is just the headcount reduction initiative? And then I know you've got other initiatives as part of your cost-cutting. Can you just touch on -- did any of those make an effect in the quarter, or are those things later to come?

And then my second question is just as Toy Story 4 hits soon, are you doing any of the categories for that in terms of a licensee? And do you expect the demand for both toys to impact any of your different product lines? Thanks.

Deborah M. Thomas -- Executive Vice President and Chief Financial Officer

Sure, so I'll take the cost savings, if that's OK. And then, maybe Brian, you can take the second one. But the -- from a cost saving standpoint, we are seeing our cost savings in line with where we thought it would be, it was actually a little bit better on the expense management side, we have some shifting of expense out of the quarter as well, but we still believe we're firmly on track to that $50 million to $55 million of net savings this year. And just as a reminder, it is still phasing in, which is why we said we would have a higher amount in 2020 when we get the annualized cost savings.

So I think the way that phasing is going, it will continue on through the first quarter and the second quarter and then we'll start to see kind of that full net savings by the fourth quarter, just the way the phasing is going on timing.

As far as the other items, you know, we did mention, we've got some big expense adjustments that kind of continue on with some of the line items in there, including like there is some compensation expense, that's a bit lower than a year ago, travel (ph), you know it's all things, all the way through somewhat offsetting that is we did have some expense with respect to ramping up our warehouse in the US and we have talked about that at year-end.

So kind of a start-up costs we don't expect to have those levels for the rest of the year, and in addition to that we continue making the investment in our Wizards of the Coast gaming brand. So all the gaming brands there is an administrative piece that goes with that as well. So we are seeing good cost savings, we -- the whole team around the world have to just give them credit, everybody is very focused on expense management as well, and our cost savings are on track and we remain really focused on that.

Brian, do you want to...

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

Sure. The team has put together a nice lineup for Toy Story, particularly around Mr and Mrs Potato Head, as you know, they've been among the cast of the movie and historically and it's exciting to see them in the trailers that we've seen thus far, and so you'll see some initiatives from us around the -- some key characters and around the brand.

Operator

Thank you. Our final question today comes from the line of Gerrick Johnson with BMO Capital Markets. Please proceed with your questions.

Gerrick Johnson -- BMO Capital Markets -- Analyst

Hi, good morning. Thanks. So retailers increased the space during the holiday to bring more product, and you had more doors did that continue in the first quarter or did they compress back to their original layouts?

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

You know, we saw an incremental space in the first quarter. We've also seen it beyond our top retailers where we have performed quite well, and they've had space, a lot of those initiatives are also increasing as we get into this early second quarter recognized that Easter was in the second quarter, the boys' action isle (ph) for example a major retailer get set closer to the Avengers movie. We said Avengers at the end of March, around the world. So we are seeing incremental space there, but also as we go out, we talked about these new channels. We've seen great support around the new channels of retail in this first half of the year and it's indicative of the momentum we're seeing, Easter to Easter where we said we were up mid single digits and year-to-date, we're just down a couple of percent, if we take year-versus-year recognizing we're still up against some Toys-R-Us headwinds for the first half of the year.

Gerrick Johnson -- BMO Capital Markets -- Analyst

Okay. Then going into second quarter, when we compare to last year, do you think these retailers under ordered last year knowing they are facing the Toys-R-Us liquidation competition?

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

I think a number of things, I think that given the liquidation it had us changing strategy at that point, we thought we have far and more new initiatives coming in the second quarter this year than we had a year ago, whether it's Nerf Fortnite or the Avengers lineup followed by Spider-Man.

We're also seeing really good momentum in Baby Alive and some new initiatives there. So I think it had to do with all of us trying to understand the market impact a year ago versus going back to our focus on innovation and insights and storytelling for this year and demonstrating that we can grow absent the Toys-R-Us.

Gerrick Johnson -- BMO Capital Markets -- Analyst

Okay, then on BumbleBee, as it looks now, can you attempt to quantify the profit contribution from this one? Or perhaps the return on investment?

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

Yeah. Overall, we're in the home entertainment window, home entertainment is performing at a higher level than our original estimates. So that's quite good. We'll have some estimates from the studio coming up shortly as to where we'll be, and as Deb said, the income or cost associated with the movie will come later this year. The sales are associated with BumbleBee have been quite strong. It's also haloed across the brand. We've done a number of what we call G1 or Generation-One product lines for a number of retailers that have been reminiscent of our 80's product lines as a result of celebrating the 80's as part of the movie.

So it's had a impact in our toys and games business, but also an impact in our mobile gaming business as Transformers: Earth Wars has picked up on content around BumbleBee as well our consumer products business.

And that's in fact, why you're seeing consumer products -- partly why you're seeing consumer products growing in the quarter.

Gerrick Johnson -- BMO Capital Markets -- Analyst

Okay. And I'm going to throw one more in, and I'll save the rest for later on. The obvious follow-up to Felicia's question, could there have been anything that was perhaps pulled into the quarter that could surprise to the downside in the second quarter?

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

No, we didn't really, there were really no pull-ins as I mentioned, the only brand that was really a few million dollars that shipped in the first quarter that was intended for the initiatives that kicked off in the second quarter was Power Rangers, because of course we couldn't put the product on shelf until the very end of the first quarter, which is in fact what we did, and it was only in North America. So it is a...

Deborah M. Thomas -- Executive Vice President and Chief Financial Officer

And it was a small number...

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

I know, and that is said so...

Deborah M. Thomas -- Executive Vice President and Chief Financial Officer

You know, I think we did see some shifting of expenses to later in the year, but again I'll go back to what I said earlier, our full year guidance remains the same.

Gerrick Johnson -- BMO Capital Markets -- Analyst

Great. Thank you very much.

Deborah M. Thomas -- Executive Vice President and Chief Financial Officer

Thank you.

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

Thank you.

Operator

Thank you. I will now hand the call back to Debbie Hancock for closing remarks.

Debbie Hancock -- Senior Vice President of Investor Relations

Thank you, Rob, and thank you everyone for joining the call today. The replay will be available on our website in approximately two hours. Additionally, management's prepared remarks will be posted on our website following this call. Hasbro's second quarter earnings release is tentatively scheduled for Tuesday, July 23rd.

Thank you.

Operator

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

Duration: 60 minutes

Call participants:

Debbie Hancock -- Senior Vice President of Investor Relations

Brian D. Goldner -- Chairman of the Board and Chief Executive Officer

Deborah M. Thomas -- Executive Vice President and Chief Financial Officer

Stephanie Wissink -- Jefferies -- Analyst

Arpine Kocharyan -- UBS -- Analyst

Drew Crum -- Stifel -- Analyst

Felicia Hendrix -- Barclays -- Analyst

Michael Ng -- Goldman Sachs -- Analyst

Timothy A. Conder -- Wells Fargo -- Analyst

Eric Handler -- MKM Partners -- Analyst

Ray Stochel -- Consumer Edge -- Analyst

Linda Bolton Weiser -- DA Davidson -- Analyst

Gerrick Johnson -- BMO Capital Markets -- Analyst

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