Daily Double
October 18, 1999
By
Ticker: (Nasdaq: TOPP)
Phone: 212-376-0466
Website: www.topps.com
Price (10/15/99): $7 7/8
How Did it Double?
Topps means different things to different generations. For the older set, Topps was the company behind Bazooka bubble gum, where Bazooka Joe comics with awful jokes wrapped themselves around the hard chewables. For less-seasoned adults, the name brings back memories of ripping open a baseball card wax pack to see which sluggers and slingers came inside -- without having to spring for tobacco.
And for today's kids? Topps means Pokemon, baby! The Pokemon craze, which began in Japan in 1996 and washed up stateside late last year, has taken the country by storm. "Gotta Catch 'em All," goes the battle cry, and the mad scramble finds Topps' Pokemon trading cards flying off the shelves.
Topps has been fortunate in many other ways. Mark McGwire and Sammy Sosa have arguably saved baseball with the longball. WCW, the hot wrestling franchise, is bodyslamming naysayers with sky-high ratings. NFL football attendance and fan appreciation are at record levels. NBA basketball is around the corner with no lockout this time. Even the NHL, from which Topps had taken a two-year cardmaking hiatus, seems aglow in the new hockey season. Topps produces trading cards for all these professional sports properties.
With sales up 49% so far this fiscal year, and net income 155% higher, shareholders must feel like their stock certificates came with prized insert cards. After all, is there really any more worthy collectible than capital appreciation?
Business Description
Founded in 1938, Topps primarily markets trading cards, confections, and sticker/albums collections.
In 1951 the company launched its first line of baseball trading cards. Today the product line has branched out into other sports as well as sci-fi tweaked entertainment entities like X-Files trading cards and Star Wars sticker/album collections. Up next? Marvel Comics heroes like Spider-Man and Hulk.
The confectionery side began in 1947 with the debut of Bazooka bubble gum. Nowadays, the company is better known for its Ring Pop lollipops -- which have inspired new lines like Baby Bottle Pop, Push Pop, and Bazooka Pop.
Financial Facts
Income Statement
12-month sales: $283.6 million
12-month income: $27.2 million
12-month EPS: $0.58
Profit Margin: 9.6%
Market Cap: $374.1 million
Balance Sheet
Cash: $57.1 million
Current Assets: $123.8 million
Current Liabilities: $83.4 million
Long-term Debt: None
Ratios
Price-to-earnings: 13.6
Price-to-sales: 1.3
How Could You Have Found This Double?
Pokemon. Who would've imagined that a Nintendo game with a premise of catching and training 150 different characters would captivate a nation? Well, the groundswell had been building for two years in Japan. When Pokemon made its U.S. debut last September as a pair of top-selling Nintendo Game Boy cartridges followed by a cartoon series that immediately became the highest-rated children's show on the WB Network, a country was officially smitten.
Early on there seemed to be only one domestic winner, 4Kids Entertainment (Nasdaq: KIDE). The company owned the U.S. licensing rights for Pokemon and served as the distributor of the animated series. Over the past year, 4Kids has earned its visionary shareholders a whopping 30-bagger.
The next equity group to cash in is, naturally, the front line. That is where Topps would come in. While it is not the only player in Pokemon trading cards -- it shares the honor with Hasbro's (AMEX: HAS) recently acquired Wizards of the Coast -- it is in a comfortable position. Pokemon logically translates itself to card collecting the same way a gamer would go around collecting pocket monsters.
Topps didn't begin card distribution until the last week of August, but the demand has been mind numbing. In just that first week of sales, Topps rang up $7 million in revenues that accounted for a margin-rich $0.05 a share in earnings.
Where to From Here?
Next month Topps will roll out Pokemon lollipops. This should be another juicy margin move for Topps, since the markup for the confection should be sweet.
But Topps isn't even the king of Pokemon treats, since Toymax International (Nasdaq: TMAX) will be rolling out licensed candy, gum, and gummi snacks. While Pokemon toys will rain on down -- and my early gut feeling is that Hasbro's Furby-ish Pikachu will be huge when it hits stores next month -- Topps should continue to do well with the low-ticket impulse purchases. That is, if they are there to purchase in the first place.
I was at Toys R Us (NYSE: TOY) last week and two different grandparents were hounding a manager about when the next shipment of Pokemon cards would come in. Sold out in the sleepy month of October? This is the kind of frenzy that plays well into supply issues. Bank on Topps-topped stockings come December.
In the meantime, the lone analyst putting out earnings estimates on Topps is looking for $0.70 a share this year and $0.90 next year.
But, what about the day when Pokemon fades away? Well, Topps was a profitable company long before Pikachu and his pals were flattened on a card top. Beyond sport cards, the company has come up with clever gimmicks for other entertainment offerings. In its Xena and X-Files series, the company landed a dozen supporting cast members to autograph select cards. The big stars didn't lend ink, but by loading up on willing familiar yet secondary talent, Topps has been able to stick one of the signature cards into every dozen or so packs. The chances of winning are high. Sales have been brisk.
It is that tie-in, that limited edition exclusivity, which has allowed Topps to turn commodity trading cards into premium-priced collectibles. While Pokemon may be a big reason why net margins have crept into double-digit territory, this is a company that is still set to move forward in a world perpetually invigorated by sports and entertainment. Say it is so, Bazooka Joe!
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