But the biggest change for Marvel between Q1 2003 and the first quarter of 2004 was the 'Company's effective tax rate, which rose from 16% in 2003 to 41% for 2004 and turned a healthy increase in net sales into a 24% decline in net income compared with the first quarter of 2003. Still Marvel raised its guidance for 2004 from $0.83--$0.91 to $0.89--$0.94 and its stock price rose about 6% after the release of the company's Q1 financials. Marvel's increasing net cash position will allow the company to retire its Senior Notes in June and become relatively debt-free. With its strong cash position it does appear likely that Marvel will likely be in the market to make some acquisitions.
Here's a quick look at the performances of Marvel's three divisions:
Licensing revenue grew only slightly in the first quarter, but this was actually quite an achievement given the robust $18 million dollar payment the company gained in Q1 2003 from the renewal and extension of one major video game license. Licensing revenue for the category that includes electronic games declined from $27.9 million in Q1 2003 to just $5.4 million in 2004, but this deficit was more than made up for by gains in the apparel category, which rose from $4.9 million to $19.7 million and in the food category, which showed a gain from $1.5 million in Q1 2003 to $15.4 million this year. Marvel attributed the growth in these two categories to a 'brand consolidation strategy.' Foreign licensing revenues are expected to double in 2004 and reach 15% of Marvel's total licensing revenues for the year. Long term Marvel still sees room for growth in foreign licensing, which could eventually contribute 40-50% of all licensing revenues.
Publishing revenues rose due to a higher title count and increased advertising revenues. Marvel released an average of 61 titles per month in Q1 2004 with an average circulation of 56,500 books, versus 51 titles per month with an average circulation of 55,750 in the same period in 2003. Operating margins grew from 33% in 2003 to 37% in 2004 primarily due to increased advertising revenues.
Shipments of Spider-Man 2 toys led to an increase in net sales for the Toys category from $22.3 in Q1 2003 to $52.6 million this year. According to Marvel's Avi Arad, the nation's major toy retailers have decided that Spider-Man 2 will spawn the major toy line for 2004 and Marvel expects to sell between $175 and $200 million dollars worth of Spidey toys by year's end (versus the $105 million in Spider-Man toy sales generated by the first Spider-Man movie). While there is doubt that Spider-Man 2 will be able to top the original Spider-Man film's amazing $400+ million box office total, Marvel officials are quite certain that sales of Spider-Man 2 toys will nearly double versus the original Spider-Man movie.