JAKKS Pacific, Inc. (JAKK) Q4 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for joining the JAKKS Pacific Fourth Quarter and Full Year 2011 Earnings Call with management. Today, JAKKS will review the results for the fourth quarter and full year ended December 31, 2011, which the company released earlier this morning. On the call today are Stephen Berman, President and Chief Executive Officer; and Joel Bennett, Executive Vice President and Chief Financial Officer. Mr. Berman will first provide an overview of the quarter and operational results, and then Mr. Bennett will provide detailed comments regarding JAKKS Pacific's financial results. Mr. Berman will then conclude the prepared portion of the call, with highlights of product lines and current business trends prior to opening up the call for your questions. [Operator Instructions] Before we begin, the company would like to point out that any comments made about JAKKS Pacific's future performance, events or circumstances, including the estimates of sales and earnings per share for 2011, as well as any other forward-looking statements concerning 2012 and beyond, are subject to Safe Harbor protection under federal security laws. These statements reflect the company's best judgment based on current market trends and conditions today and are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected in forward-looking statements. For details concerning these and other such risks and uncertainties, you should consult JAKKS's most recent 10-K and 10-Q filings with the SEC, as well as the company's other reports subsequently filed with the SEC from time to time. With that, I will turn the call over to Mr. Berman.

Good morning, everyone, and thank you for joining us today. The tough economic climate combined with several underperforming product lines in our portfolio contributed to lower than expected sales in 2011. However, there were some shining stars in the 2011 portfolio, including our entertainment-based brand such as Disney Princess toddler dolls; Smurfs plush and figures, which performed above our expectation; Spy Net electronics; Disguise Halloween products; Kids Only! line of evergreen activity tables and outdoor furniture, both licensed and unlicensed; and Creepy Crawler activities also did well for us. We are well into the first quarter of 2012, and so far, we are pleased with the reaction from buyers, licensors and other industry partners on our 2012 line up. We're also pleased with recent sell-through data for the initial part of the quarter. We have some really terrific products in our portfolio, and we're optimistic for the year ahead, with contribution coming from an extremely broad range of toys and toy-related products and electronics for all ages and for the entire family. Our action-packed Monsuno line of figures and playsets are shipping now to virtually every major retailer in the U.S., and we'll ship internationally later this year. We are excited for the one-hour premiere, first episode this Thursday, February 23, at 8:00 p.m. on Nicktoons, and we hope you will all tune in and enjoy the show. We are particularly excited about our new high-tech offering such as the Action Cam mini-sport action video cameras, Walking Dead Deluxe TV Games, Baby Watch first-ever wearable video baby monitors and more. We are working toward expanding beyond the toy aisle and into the consumer-electronics aisle with these new items, targeting people of all ages and demographic profiles. We began showcasing and having -- had great response on our beautiful Dolls and Dress-Ups and Role Play for Disney Princess and Disney Fairies based on the upcoming Disney Entertainment, a new and expanded Pre-School and early-learning toys based on licenses in our Tollytots division, as well as our other gorgeous lines of the Winx fashion dolls and action dolls and dress-up. I'll shed much more light on our existing 2012 lines later on the call. Our international business continues to provide an opportunity for growth for JAKKS Pacific, and we're extremely pleased to announce we have Monsuno placed in over 12 countries internationally. Other product lines fairly thriving abroad include our Spy Net electronics, Real Construction, Club Penguin, Smurfs and Girl Gourmet, just to name a few. During the quarter, we continued our acquisition of Moose Mountain Toymakers, a leader in the foot-to-floor ride-ons, wagons, tents, safe soft play environments, arcade pinball games and sports arcade products, with well-known characters and brand licenses, including Disney, Fisher-Price, Kawasaki, Sesame Street, Thomas the Tank Engine and Friends just to name a few. We believe this strategic acquisition, such as Moose Mountain, combined with our continued focus on growing all of our JAKKS divisions will result in long-term growth for the company. The Moose Mountain acquisition strengthens our Pre-School product offering and further expands our shelf space within all major customers. I would now like to turn the call over to Mr. Joel Bennett to review our financial results for the fourth quarter and full year of 2011, and then I will give more of an update on our 2012 product portfolio line, before opening the call to questions. Joel.

Thank you, Stephen, and good morning, everyone. Net sales for the fourth quarter 2011 were $141.1 million compared to $198 million reported in the comparable period in 2010. The reported net loss for the fourth quarter was $20 million or a loss of $0.77 per diluted share, which includes $1.9 million or $0.05 per diluted share related to legal and financial advising fees and expenses, in conjunction with the unsolicited indication of interest to acquire the company. This compares to net income of $8.9 million or $0.30 per diluted share, which included a tax benefit of $5.9 million or $0.17 per diluted share reported in the comparable period in 2010. Excluding the legal and financial advising fees and expenses in 2011 and tax benefit in 2010, the fourth quarter net loss in 2011 would have been $18.8 million or $0.72 per diluted share compared to earnings of $3 million or $0.13 per diluted share in 2010. Gross and operating margins declined year-over-year with lower overall sales volume, as well as lower sell-through at retail, resulting in higher markdowns and higher royalty expenses, relating to license guarantee shortfalls, along with the legal and financial advising fees and expenses incurred in 2011. Net sales for the full year of 2011 were $677.8 million compared to $747.3 million in 2010. Net income reported for the full year period was $8.5 million or $0.32 per diluted share, which includes fees and expenses related to the unsolicited indication of interest of $3.8 million or $0.09 per diluted share. This compares to net income for the full year of 2010 of $47 million or $1.52 per diluted share, which includes the onetime pretax charge relating to the benefit payment of $2.8 million or $0.06 per diluted share to the estate of Jack Friedman pursuant to his employment agreement and tax benefits totaling $10.8 million or $0.31 per diluted share. Excluding the legal and financial advising fees and expenses in 2011 and the tax benefits and onetime charge in 2010, the full year earnings in 2011 would have been $10.9 million or $0.41 per diluted share compared to $38.2 million or $1.27 per diluted share in 2010. Turning to a more detailed discussion of our results. Our product lines are aligned in 2 categories, which reflect the makeup of our business. They are Traditional Toys and Electronics and Role Play, Novelty and Seasonal Toys. Worldwide sales of products in our Traditional Toys and Electronics segment, which includes Dolls, Action Figures, Vehicles, Electronics, Plush and Pet Product were $79.8 million for the fourth quarter of 2011 compared to $107.3 million for the fourth quarter of 2010. And the sales for the full year of 2011 were $348.9 million versus $358.3 million for the full year of 2010. 2011 sales this quarter in this segment were led by our boys Action Figures with Pokémon, Smurfs and Real Steel that were offset by a decline in UFC and TNA, Interactive products, though they contributed less this year, with declines in TV games among others; and finally, Pre-School, which increased with higher Disney Princess Dolls sales in our Tollytots division. Worldwide sales from our Role Play, Novelty and Seasonal Toys segment, which includes Role Play products, novelty toys, Halloween Costumes, Indoor and Outdoor Kids' Furniture and pool toys were $61.3 million in the fourth quarter of 2011 compared to $90.7 million in the fourth quarter of 2010. And sales for Role Play, Novelty and Seasonal Toys were $328.9 million for the full year of 2011 versus $389 million for the full year of 2010. Role Play Toys dominated sales in the category this quarter, followed by Halloween Costumes, although both segments were down overall versus last year. Included in the category numbers are international sales of $16 million for the fourth quarter of 2011 compared to $22.3 million for the fourth quarter of 2010. International sales for the full year of 2011 were $108.5 million compared to $113.9 million for the full year 2010. Our international sales were enhanced by our JAKKS staff selling direct to retail in the local territory. We are pleased with the progress we've been making, as we seek to maximize international opportunities for license and especially JAKKS's own content. Gross margins for the fourth quarter of 2011 and 2010 was 13.4% and 33.1% of net sales respectively. And gross margins for the full year of 2011 was 28.6% of net sales compared to 32.8% of net sales in the full year of last year. The decline in the 2011 period was primarily due to year end markdowns at retail and increased royalty expenses due to license guarantee shortfalls on the lower overall sales volume. SG&A expenses in the fourth quarter of 2011 were $55 million or 39% of net sales, as compared to $54.6 million or 27.6% of net sales in 2010. For the full year of 2011, SG&A expenses were $192.7 million or 28.4% of net sales compared to $194.8 million or 26.1% of net sales in the prior year. The increase as a percentage of net sales for the quarter and year is attributable to lower overall sales in addition to the legal and financial advisory expenses incurred in connection with the unsolicited indication of interest. Operations provided cash of $44.6 million for the full year of 2011 compared to $67.5 million in 2010. As of December 31, 2011, the company's working capital was $374.7 million, including cash and equivalents and marketable securities of approximately $257.5 million. Our balance sheet remains very strong. We continue to evaluate various uses of our funds and untapped financing capacity. Using our disciplined approach, we look for accretive acquisitions to complement the growth of our business and effectively deploy our capital. We completed our acquisition of Moose Mountain Toymakers in the fourth quarter of 2011. And during the third quarter, we completed our previously announced $30 million stock buyback program, with the repurchase of 1.2 million shares, for a total of $19.3 million. And the company implemented a cash dividend program that currently pays an annual dividend of $0.40 per share payable quarterly to shareholders of record of the company's common stock. The initial dividend was declared and paid in October. The new dividend policy is intended to allow for internally generated cash flow to support our organic and acquisition growth strategy, maintain a strong balance sheet, as well as provide sustainable quarterly dividend to our shareholders. Depreciation and amortization was approximately $5.3 million in the fourth quarter of 2011 compared to $5.9 million for the fourth quarter of 2010. And for the full year of 2011, D&A was approximately $25.9 million compared to $28.7 million in 2010. As for our tax rate, our effective rate for 2011 is expected to be 25% before the FIN 48 or other adjustments. This may change if there's a shift in sales between the U.S. and Hong Kong company. Capital expenditures were $900,000 for the fourth quarter of 2011 compared to $2 million for the fourth quarter 2010 and $12.5 million for the full year of 2011 compared to $11.6 million in 2010. This was in line with our expectations. Accounts receivable as of December 31, 2011, were $103.6 million compared to $122.5 million at the end of the fourth quarter of 2010. DSOs increased modestly to 65 days from the 56 days for 2010. Inventory as of December 31, 2011, was $47 million, up from the December 31, 2010, level of $43.2 million. The increase year-over-year was due primarily to the placement of our new products including Monsuno. Inventory levels remain generally low with DSIs of 49 days compared to 36 days in the same period in 2010. As for our guidance for 2012, we're anticipating net sales in the range of $720 million to $728 million, with diluted earnings per share in the range of $1.01 to $1.07 per diluted share, excluding costs in connection with the unsolicited indication of interest. We continue to have strong confidence in the future prospects of JAKKS Pacific and its shareholders. Lastly, our Board of Directors has declared a regular quarterly cash dividend of $0.10 per common share. The dividend will be payable on April 2, 2012, to shareholders of record at the close of business on March 15, 2012. With that, I will return the call back to Stephen Berman.

We had some challenges in fourth quarter as I mentioned earlier. Sales were down on a number of our product lines, and late Christmas rush and a challenging economy, all contributing to our revised guidance. Lower-than-expected sales occurred in Pokémon, Golden Tee Golf TV games, I am T-Pain Mic and some of our private label lines to name a few. Our Singing and Storytelling Belle dolls did not perform to the expectations due to a variety of reasons, including the $80 price point in a tough economy. Tollytots Little Mommy product sales were also a disappointment in 2011. Despite some innovative new items, our sales dropped commensurate with the decline of the Mattel doll line, on which our products are based on. We are looking forward to Mattel's relaunch of the line in 2012, with all new dolls, a refreshed position and a vibrant new packaging. However, there were several bright spots, and we're optimistic in our outlook for the coming year, with the overall positive response we have received on a number of our product lines at the recent Hong Kong and New York toy fairs. Let's start with our juvenile products. Tollytots had a very strong year in 2011 with My First Disney Princess toddler and baby dolls, which continued to be a big success and have established itself as the #2 large doll brand, just behind Hasbro's Baby Alive. My First Disney Princess dolls were heavily promoted by all major retailers with the Rapunzel Toddler Dolls as a key driver for 2011. With more beautiful dolls at a good value slated for 2012 and a continued content and marketing support from Disney, we expect increases in sales and market share for this evergreen brand. Disney will be releasing the new animated feature Brave in 2012, which we will create yet another opportunity to add a new princess to the line up. In addition, Graco playsets and accessories continue to be a perennial best seller for our Tollytots division. Other big news for Tollytots in 2012 is the new introduction of the Safety First Baby Genius and Rubik's Cube lines. We have received big response and anticipate good placement at all the major retailers, which will give JAKKS an even broader retail placement in the Pre-School category. We continue to see good sell-through for our Kids Only! outdoor and furniture product line, activity tables, puzzle furniture and more. We had several successful promotions with major retailers as well as with mid-tier accounts in 2011 and had a terrific sell-through in the drug, supermarket, home improvement and specialty channels. We are looking forward to expand the business this year. Top items to look forward to in 2012 include our core activity tables, activity trays, step stools and patio furniture. We are also excited to announce that Kids Only! will be bringing back the nostalgic and iconic Original Big Wheel, their #1 selling ride-on of all time. Over 200 million Big Wheels have been sold in its 42-year history. We believe there is a huge void in the marketplace for a ride-on of this style and price point. And we are looking forward to making big tracks for 2012. The reaction from the trade has been overwhelmingly positive for this line. Moose Mountain, though acquired in the fourth quarter, contributed only nominally to JAKKS for 2011, had a great success with its foot-to-floor ride-on from 2011, particularly with the Fisher-Price and Kawasaki licenses, Disney Cars 2, Disney Princess ball pits, dominated retailer's program coverage at all major retailers, with clean sell-throughs and the innovative Disney Mater wagon was a Toys"R"Us exclusive in the U.S. and sold out to the last piece. We are looking forward to increase penetration with our Moose Mountain wagon line, with the introduction of the Disney Junior wagon line. We also anticipate increased market share in the play tent and ball tent category, with the introduction of Sesame Street and the Thomas, the Tank Engine and Friends licenses. We have several strong licenses that we're adding to our existing powerhouse of brands, which include Disney, Dora the Explorer and Spiderman. We are expanding placement of our foot-to-floor ride-ons beyond the majors into additional channels, along with spring placement of our Fisher-Price ride-on at Toys"R"Us. Existing licenses for 2012 include The Amazing Spiderman movie for ball pits, pin ball games and ball shooting games and Minnie Mouse for ball pits and wagons, as she emerges from the Mickey Mouse Club. We also will be expanding our Moose Mountain's international presence, as they have had limited sales overseas in the past. CDI for 2012 has a lot of excitement around new toys, surrounding the #1 favorite Disney Princess, Cinderella Diamond DVD release this fall, specifically Cinderella enchanted vanity, deluxe jewelry box and grand waltz piano, along with the beautiful Cinderella deluxe light-up dress and matching Cinderella light-up slippers. We are also extremely excited for our gorgeous lineup of Disney Fairy Dress-Up and Role Play based on Disney Fairies' Secret of the Wings DVD release this fall, which we believe looks like the best Disney Fairies movie yet. CDI will be launching beautiful Dress-Up and Role Play items based on Nickelodeon's Winx Club in the fall of 2012, which I will touch on later in this call. We also are looking forward to the significant growth in our boys' Role Play with products based on top Marvel licenses such as The Amazing Spider-Man and The Avengers. And we're also creating a line of novelty and large-scale figures in plush based on DC Comic superheroes and Super Villains such as Batman, Superman, Green Lantern, The Flash, The Joker and many more. The line will kick off this summer to coincide with the release of one of the most anticipated films of 2012, The Dark Knight Rises, from the Batman trilogy. In our Disguise Halloween division, we are looking forward to celebrating the 25th year anniversary of Disguise with a hot lineup of licenses for the 2012 Halloween season. We recently announced an expansion of licensing agreements with Marvel. And our 2012 superhero lineup will include The Avengers, Iron Man, Captain America, Thor, Hulk, Black Widow and many others. We also expect a large demand of our Cinderella costumes from infant to adults with the new Cinderella Diamond DVD release and new costumes and wing based on Disney's Pixar, the movie, Brave. In our pets division, we launched the KONG premium treats fourth quarter of 2011. We shipped to the majority of the pet independent distributors and pet specialty retailers domestically and into Canada. We will continue to build on our success of the KONG premium treats into 2012 and beyond. We will also be expanding into Europe. In addition, our American classic pet toys are doing very well at retail. Moving onto our JAKKS girls brands. Our 2012 outlook for Disney Fairies, both in Dolls and Dress-Up, is strong with the Secret of the Wings DVD release, and we expect better retail licensure support going into 2012. The franchise continues to be strong among our target consumers, with 86% brand awareness amongst girls and moms. According to NPD, Disney's Fairies continues to be a top 10 brand in fashion dolls and top 5 brand in small dolls in 2011. We grew the Cabbage Patch Kids brand from the previous year. Internationally, Cabbage Patch Kids were one of the #1 toys this Christmas in Mexico, at an $80 price point. We have just signed on the U.K. for a massive launch in fall 2012. This year, we are introducing the babies, targeting 2 to 4 -year-olds, which will deliver the ultimate in nurturing, while maintaining our kids product lines for 4- to 6-year-old girls focused on fashion and friendship. We expect to receive full retail support and anticipate the business to be strong in 2012. Exciting new news for girls for 2012 is the Winx Club, which we are expecting to be a top 5 content-driven, must-have fashion doll brand in 2012. It's a massive corporate initiative across JAKKS, CDI and Disguise. The core of the line is fashion dolls, and we will also offer Dress-Up, Role Play and Halloween Costumes. CDI will be launching several fashion-forward, dress-up items, including dresses, tutus and a variety of musical instruments that will allow girls to become their favorite Winx Club character from the show. Products will hit shelf in August at all major retailers. We are planning a strong launch and success, and we will manage the long-term growth of this brand. This show is a huge hit. The Winx Club summer specials brought in more than 2.8 million viewers. And it is the #1 show for girls ages 2 to 11 in its time period. Our Smurfs products were a hit both domestically and internationally and exceeded our expectations and those at retail. We will be continuing with a great basic business of Plush and figures in 2012. Our overall objective for 2012 in our innovative and electronic lines is to develop the latest consumer products beyond pure toys for kids. We are a consumer products company and target people of all ages and demographics and profiles. And as a result, the target distribution channels go beyond just toy stores and the toy aisles. JAKKS' Spy Net products selling was above expectations. And looking into 2012, we continue to take a role play to real play, with even more technology in the Spy Net line. The new Spy Net Ultra-Vision features real working night vision, thermal vision, a daytime filter and also has the ability to take pictures and videos. We're excited to continue to push on the boundaries of technology with the Spy Net, both in North America and internationally. Our TV game lines is expanding into touch pad gaming to replicate how kids play and interact to smartphones and tablet games. We're incorporating hot licenses and top-selling apps, Cut the Rope, SpongeBob, Spider-Man and Star Wars. Our Big Buck Hunter Pro and Big Buck Hunter Safari continue to do well, especially in its third year. And this year, we are introducing The Walking Dead Deluxe TV game space on AMC's top-rated cable show, which extends our proven peripheral platform of first-person shooters into another hot licensing theme [ph]. We are extremely excited with the reception on our Action Cam line, a new video recording system targeting a broad demographic from age 5, all the way up to teenagers and adults and at affordable prices. This is a JAKKS Pacific own content and one that we are extremely excited about. The distribution opportunity extend just beyond toy and the toys aisles into sporting goods stores, electronic stores, Internet site, warehouse clubs, QVC and much, much more. Our new exciting line of trains, which we are introducing as an evergreen play pattern targeting today's boys from 4 to 8 years old. Trains today only exist as Pre-School such as Thomas the Tank and Chuggington or an expensive hobby version. We are taking a look at the hobby trains and bringing them to the masses at affordable, affordable price points. Again this is another one of JAKKS Pacific own content, and we feel it will have universal appeal both domestically and internationally with broad distribution. Our new baby monitor line is another great example of JAKKS Pacific's evolution as a consumer product company, applying our proven technology to move beyond toys and extending our consumer targets to parents and grandparents. We're extremely excited for the baby monitor launch in 2012. And finally, the response to Monsuno and the early animation and product lines at our toy fair has been stellar. We are moving forward with an aggressive international expansion, and Monsuno is now placed in over 12 countries. Again, we are extremely excited for the one-hour premiere for the first episode on Nicktoons this Thursday, February 23 at 8:00 p.m., with new episodes airing every Thursday thereafter in the 8:30 p.m. primetime slot. We hope you will turn in to see it. The toy line is launching in a couple of weeks in March, and we have robust promotional plans in place, including top-market sampling campaign to get Monsuno into the hands of boys. We believe amongst others, Monsuno will be a game changer for JAKKS Pacific and will elevate our business to the next level. Monsuno is built around a powerful, action-based animation dynamic, relatable characters and a deeply woven original story. As you may know, we aligned with leading Japanese advertising and animation production companies, Dentsu, global television distribution giant Fremantle and Topps as an investor and trading card partner, Nickelodeon as our partner for worldwide broadcast distribution. And with a terrific toy line by JAKKS Pacific, Monsuno is fast developing into a powerful force in the boys' action arena for years to come. The opportunities are endless for outbound licensing for Monsuno. We already have Topps as our trading card partner, and we're looking into licensing for our apparel, electronics, video games, back-to-school supplies like backpacks and lunch boxes amongst others. We believe Monsuno has all the ingredients to become a hugely successful boys entertainment property for many years to come. Overall, we are extremely pleased with the progression into 2012. We managed our inventory levels for 2011 and into 2012, and we feel we are well positioned for growth, with a diverse portfolio of JAKKS core brands, top licenses and consumer electronic offerings. With that, we'll open the line up for any questions you may have. Thank you very much.

[Operator Instructions] Your first question comes the line of Scott Hamman from Keybanc Capital Markets.

Just a couple of questions here. Number one, on inventory levels, can you kind of talk about where you stand in the channel right now, as well as with your own inventory in terms of some of the carryover stuff? And how that might be impacting your first quarter shipments?

Well, for the first quarter, actually, we're seeing sell-throughs quite nice in our initial first, say, 45 days into the quarter. And our inventories -- our inventory level for JAKKS are at a basically low level of inventory amongst the majority of our categories and brands. There may be a few small pockets here and there. But overall, as a company, we're very proud of the inventory levels. And that was due to heavily discounting in December, ensuring that we'd have dramatic sell-through going into 2012.

Okay. And Joel, just on the gross margin, can you kind of quantify the impact of some of these markdowns? And how we should be thinking about your gross margin expectations embedded in your guidance for 2012?

Sure. The effect on Q4 in an effort to clean up inventory retail, we have about $15 million over and above what we would consider our normal markdown levels. In addition, for 2012, we're looking at margin expectations of just under 33%. So we're back on track. And we're looking to expand in the coming years as JAKKS content becomes a bigger percentage of the overall business.

[Operator Instructions] Your next question comes from the line of Sean McGowan from Needham & Company.

A couple of questions. Could you be more specific about where the declines were in the Role Playing, Novelty and Seasonal category?

We went into the Role Play -- I would end up saying, the majority of that was on the Disney Fairies. Not -- it was a lower part of our forecasted number. It still did well for us. But due to that, there was not a new movie content or any new content and promotion on the Disney side. We actually had a higher expectation for the Disney Fairies, as we came off a great year in 2010. And then some of the private-label programs that we were working on in with various customers, in the Role Play segment, they came in lower than expected due to lower sales from some of those retailers.

Okay. And following up on the earlier question, could you be a little more specific on point-of-sale inventory year-over-year at year end? And how do you expect that to trend through the first half? Kind of where do you -- actually, throughout the whole year, do you expect that inventory level at retail to rise as the year goes on?

Well, I'd say due to our heavy discounting that occurred in December on -- primarily of some Pokémon, some of our higher-priced products, Real Steel, Golden Tee, various items, we did some -- I think the -- probably the largest in our history of cleaning up inventory for JAKKS. I can't speak amongst the other toy manufacturers. But our retail levels, since discounted heavily in December, the sell-throughs have been terrific. So we came into the year very clean. And a lot of new areas that we're launching into say the first half of the year are new segments. For instance, we launched Pirates of the Caribbean last year at this time. We're launching Monsuno this time. We have quite a few new areas and segments going into Easter. So we really are pretty clean at retail, both in North America and internationally.

Well, that's what I'm getting at. So you're clean going into the year, but you have a number of new launches planned, so should we expect to see that point-of-sale inventory level actually grow as these new lines get rolled out?

Yes, it would grow definitely at retail, and it is growing in order for us to achieve the, call it, the Easter, pre-Easter sales, gearing up for the Monsuno launch, and just our general everyday core business, for example, Kids Only! It's -- a very big part of their year is in Q1, getting ready for the spring, our Funnoodle, the promotional plans are all in place for Monsuno. So from the Moose Mountain, which is pretty much a nominal part of our business in Q1 but picks up much more in Q2, we're doing a lot of new shipping. So the inventory will increase. But at the same time sell-throughs that we've seen to date with the inventory that's increased is selling through at a very nice pace.

All right. And then last question. Can you just remind us from kind of a ballpark size how much was Moose Mountain, in terms of annual sales?

That's $35 million.

That's gross, so I'd say it's less than that in net.

I didn't hear the number. You're both speaking at the same time. What's the number?

About $34 million net.

Your next question comes from the line of Drew Crum from Stifel, Nicolaus.

Guys, I wonder if you could size the opportunity or what's embedded in guidance, with respect to Monsuno and Winx Club?

Well, as we've never done in the past, more so due to competition and retailers to give the size of what each of these categories or some of these categories are, we never break it out, because it's quite different to the penetration we have at all of our retailers major and minor. But we are taking a very strong but cautious, optimistic approach. There -- it has all of the mixing for both Monsuno separately, then to Winx that they could both be game changers for us. But due to the fall occurrences, really, in November, December, we -- Winx doesn't launch until August, but the ratings, as we said earlier in the call, but the #1 girls rating for Nickelodeon from 2 to, I think, 11. I don't have the exact data. Monsuno is launching on Thursday, and then stripping during fall. So as we can -- I know you would like to have it broken up, but we don't break out the -- each of our segments and it's more for really the licensors and the retailer in competition knowing.

Okay. Fair enough.

And I would tell you on an anecdotal bit, Beyblades and Bakugan, which launched pretty much the same time periods that we have with Monsuno. And both of those segments are truly trending down. The opportunity for Monsuno not having that kind of competition is tremendous, both Beyblades and Bakugan were great toys. And that's why it drove sales more than just the content. And Monsuno from the internal testing, external testing from the support that we have in retail both worldwide, the support we have gotten from Nickelodeon from our licensing partners, has all the mixings to be a game changer for JAKKS.

Okay. And just shifting gears, guys, you gave some color on gross margin guidance for 2012. A number of your competitors have discussed increasing pricing in 2012. What are you seeing in terms of input costs for your business? And what are your plans for pricing to offset some of those input costs?

I'm sorry, would you ask that again?

Sure. Just wanted to get a sense as to what your plans are with respect to pricing increases for 2012?

I'd say, we've actually have that put into our mix already for 2012. We don't believe besides labor issue that continue to be a concern through all of manufacturing. That the commodity prices, resins, steel, won't change or pretty much hold throughout the year. We've added in and already placed into our pricing any increases that we've foreseen. But remember, because of the segmentation that we're in from cut and sew which is Disguise to CDI, which is injection molding and cut and sew to JAKKS's core which is Electronics and injection molding to Kids Only! being steel and primarily material. There's different fluctuations in labor cost and commodity costs. So it really has a dynamic by each division, more than anything else.

Your next question comes from the line of Gerrick Johnson.

Where do you guys stand in terms of reorganization? Are you still in the process of closing or moving offices, particularly CDI? Is that complete? And is there any sort of expense for that in this quarter's SG&A?

We, actually, completed the move of CDI last year. We have the staff all in place there in our Santa Monica design center. And we're very fortunate opportunity opened up which is in the Yahoo! space, and we were able to take it at the right time. So the staffing has been completed, the -- all of the nominal costs were included in 2011's number. We do have, I think, 4 months left on our lease at CDI. So we picked up synergies amongst our packaging department and so on, so there won't be any added costs with regards to CDI. We are always looking at overhead and reduction of overhead or expenses. So that is an ongoing process of our company since over the last 10 years. So we've done some headcount reductions, some cost reductions in various areas of business, so that's always ongoing.

Okay. Switching gears to Monsuno. If this works out well and becomes something akin to Beyblade or Bakugan, would you have the ability to quickly ramp up production? Or would you be chasing demand? How would you be able to support that? And would you be able to do Beyblade or Bakugan-type numbers this year or next?

It's a great question. I'm going to answer that question today, and I also have Jeremy Padawer here, who's the Executive VP of JAKKS Marketing, as well as one of the co-creators of Monsuno. But assuming it takes off, we will be able to ramp up, but we will be ramping up -- we're not -- as we are the worldwide manufacturer of toys, we already have geared up for success. But assuming that it takes off to a Beyblade's capability or Bakugan, I believe we will end up chasing some of it, which we all believe internally, as management is very healthy to leave some of the shelves or product not at total levels or not trying to overship the product. We want to get years out of this line. And the way that we have a 2-, 3-year deal with Nickelodeon and the partnerships that we have from the Bandai's in Japan to GP to Hunter [ph]. We took the risk on to it already. So we are there, but we will have to chase it. We aren't gearing up with inventory. That's not the way we'll run our business. Again, we look at inventory year-over-year. We've ended up nominal to the following year in 2010. We're expecting growth for this year and also growth for the first half. But with that, I'd like to hit some very important highlights just for 3 minutes. And while Jeremy's here, he can give some quick anecdotal highlights more than I would be able to give color on. So Jeremy, please.

Yes. Absolutely. So just as Stephen mentioned, we've tooled this up for success. Our expectations -- we're cautiously optimistic, at the same time, we're making sure that we can cover the upside. After 3 years of toy and store development, we're very excited to announce that on Thursday night at 8:00 p.m., this is going to be on Nickelodeon's Nicktoons, 52 episodes guaranteed, worldwide pay TV is signed up with Nick, and that's very exciting. But we're also completing free TV deals all over the world to capture the viewers, who aren't traditionally your cable TV viewers. And that includes Canada, the U.K., Italy, Spain, Australia, Japan, the Nordic, South America, the Middle East, New Zealand and, really, all over the world. So this is a worldwide global opportunity. And we have not only -- the TV development, but the toy distribution. And I think we've done an awesome job on the storytelling. This is one of the bigger opportunities we've ever had. Now in terms of the storyline, this was all based on a terrific toy idea. But the storyline is also going to be great. I mean, in general, it's about kids that control the power of monsters. And these kids are unsuspecting heroes. 65 million years ago, the monster DNA basically crashed into our universe and slams into our atmosphere, and now we have a battle over this incredible DNA, which comes to life with our awesome toy line.

Gerrick, is there -- do you have -- that was just Jeremy's part on that. Do you have additional questions?

No, that's it.

And ladies and gentlemen, we have no more questions in queue. This concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.