Anyone still around? here is the wsj article.
Heard On The Street: `Star Wars' Hopes May Have Zapped Hasbro Stock
AUG 13,1999
By Joseph Pereira, Staff Reporter of The Wall Street Journal
"Star Wars" has knocked Hasbro shares down to earth, but the slump could
offer an out-of-this world buying opportunity.
The largest maker of toys linked to "The Phantom Menace," Hasbro has been
zapped since the latest Star Wars film came out in May. When Hasbro's Star Wars
toys hit the shelves on May 3 -- two weeks before the film's release -- Hasbro
shares hit a 52-week high of $37. The stock now trades a tad above $25, a 30%
dip. Meanwhile, short interest in Hasbro stock, an indicator of negative
sentiment among investors, rocketed to 1.4 million shares last month from zero
in June.
Why the move to the dark side? For one thing, Phantom had deafening
prerelease hype. Industry specialists believed it would be so hot that "kids
were going to redecorate their rooms" into Phantom Menace mini-theme parks,
said Sean McGowan, an analyst with Gerard Klauer Mattison. "That ain't going to
happen," he now says. From talking to kids and retailers, he suggested that the
toy momentum created by the movie already is ebbing.
But to some money managers, the drubbing in Hasbro stock is more the result
of galactic expectations than phantom sales. Translation: The force still is
with the company.
"Hasbro's a steal," said Tom Russo, portfolio manager for Gardner
Investments, a Lancaster, Pa., firm that manages about $2 billion in assets. He
can't understand the stock swoon.
"The company is well managed and has a rich assortment of intellectual
properties," Mr. Russo said. He said licensing deals for Furby, Pokemon and
Pacman are complementing Hasbro's in-house brands such as Tonka and Monopoly.
Mr. Russo recently bought additional Hasbro shares, lifting his firm's holding
to two million shares, after they slipped to the 20s.
Ariel Capital Management also boosted its Hasbro stake, to 4.3% of its $3.3
billion in assets, snapping up shares at $24 each. It currently owns about 5.8
million shares, said John Miller, an Ariel analyst. "I run down to Wal-Mart,
Kmart and Toys 'R' Us a half a dozen times on the weekend just checking
shelves," Mr. Miller said. "From what I can see, the stuff's selling." Why the
stock's at about $25, he added, "beats me."
He has company at Hasbro. Three weeks ago, the toy giant boosted full-year
sales estimates for the Phantom line to $650 million from a previous $500
million. In an interview this week, Alan Hassenfeld, Hasbro's chairman and
chief executive officer, said the rumors of Star Wars' weakness are greatly
exaggerated. Mr. Hassenfeld said things are looking so good that Hasbro "may
even exceed" its estimate of $650 million in Star Wars-related sales in 1999.
Some Hasbro executives have taken matters into their own hands. Hasbro's
president, Herbert Baum, recently bought 10,000 of the firm's shares, according
to a filing with the Securities and Exchange Commission. The company said that
Mr. Baum made the purchase because he liked Hasbro's stock, not because of any
minimum executive stock-ownership quotas.
One reason Hasbro is upbeat: Toys in the U.S. are selling faster than had
been predicted by Hasbro's internal analysis, Mr. Hassenfeld said. Hasbro's
Star Wars light sabers -- which took a hit at the cash register this spring
after 618,000 had to be recalled as a result of overheating problems, which
triggered minor burnshave been fixed and now are "blowing off the shelves," he
said.
Moreover, factories haven't reported any cancellations of Star Wars
merchandise, and there have been no backups in shipping ports in California and
Washington state.
To freshen U.S. interest, the Pawtucket, R.I., firm also is releasing new
batches of figurines each month leading up to the holiday season. That's when
it plans to roll out the tour de force of the Star Wars line -- Queen Amidala's
Electronic Royal Starship, which will retail for $109 apiece. Also in the works
for this fall: a Zen-like Yoda figurine that Mr. Hassenfeld said will have
enough artificial intelligence to teach kids how to improve their light-saber
moves.
Of course, there have been a number of duds in the Hasbro line, particularly
figurines tied to the cast's more obscure characters. Hasbro said sales of its
miniature vehicles have been disappointing. Among figurines, Senator Palpatine,
Padme Naberrie and Darth Sidious haven't been popular. Shipments have been
scaled back, according to retailers.
And despite doubts about Star Wars' sustainability, Mr. McGowan, the
analyst, now predicts that Hasbro shares will rebound to the mid-to-high 30s in
the next 12 months. Seven of eight analysts who have issued recent reports on
the company rate the stock as a "buy."
Helped by Star Wars sales, Hasbro expects its 1999 net income to jump 30% on
a 20% sales increase, posting new top- and bottom-line records, said John
O'Neill, Hasbro's chief financial officer. Last month, stronger-than-expected
Star Wars toy sales helped Hasbro report second-quarter net income of $32.3
million, or 16 cents a share, blowing past analysts' estimates of about 10
cents a share. Revenue rose 53% to $874.6 million.
One of the reasons for the sanguine forecast is that Hasbro is counting on
huge Phantom demand overseas to keep its toys moving in the coming months.
Box office news from overseas -- where the film is just now making its debut
-- is better than expected. The Phantom is a runaway top grosser in the United
Kingdom, Japan, Australia and Canada, taking in about $162 million in
box-office receipts in the two weeks following their mid-July debuts. The movie
is scheduled to open in Germany, France, Spain and Italy later this summer.
Considering that the original Star Wars movies stirred little excitement
overseas, Mr. Hassenfeld characterized foreign response to the movie as
"extremely encouraging."
In the U.S., where the Phantom Menace has been playing for about 12 weeks,
receipts have totaled about $412.8 million -- clearly the biggest summer
blockbuster.
Bolstering Hasbro's retail optimism are similarly upbeat forecasts from Lego
Group, another big Star Wars toy maker. The plastic-brick maker's Star Wars
line also has exceeded the company's own sales expectations, said Peter Eio,
president of Lego Systems, the Denmark concern's U.S. unit. The closely held
firm declined to disclose sales. But Mr. Eio noted that some of Lego's high-end
Star Wars products with retail tags of $50 to $90 are selling briskly, and it
soon plans to ship an R2D2 robot that will retail for $100.
As a category, however, toys have outperformed other Star Wars merchandise,
including T-shirts, jerseys and baseball hats, whose sales have been darker
than Darth Maul's scowl. Mr. Eio attributes the discrepancy to demographics.
"Our prime market is boys ages 5 to 12, which also happen to be age group the
movie is skewed to."
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