Marvel released its Q2 financials on Thursday, with increased sales and pre-tax earnings but declining after-tax earnings due to the exhaustion of its net operating loss carry-forwards.  Sales for the quarter were $155.5 million, up 73% from $90 million in the year-ago period.  After tax earnings were $29.1 million, vs. $32.8 million in Q2 2003.  Marvel's effective tax rate doubled to 32% in 2004. 


Marvel beat its guidance for the period and increased earnings guidance for the year, but the street didn't like the numbers, hammering Marvel shares with a 15% decline.  Marvel did reduce its estimate of Spider-Man 2 toy revenues to $160 to $170 million from $175 to $200 million.


The details were far more interesting.  Marvel's publishing revenues were up 11% to $21.6 million, due primarily to an increase in titles, and despite a drop in line average.   Marvel published 65 titles per month in Q2 2004, vs. 50 titles per month in the same period last year.  Its line average dropped from 64,000 copies/issue last year to 53,800 copies/issue in Q2 2004. 


Marvel's publishing margins were up 10% of sales, from 31.6% of sales last year to 41.6% of sales in Q2 2004.  Two reasons for the increase in margin were given -- 'operating efficiencies,' and 'reductions achieved in distribution costs compared to the prior-year period.'  Taking out a $1 million one-time benefit, that leaves $1,268,000 in increased profitability due to those two factors.  Given that direct sales still account for a high percentage of Marvel's total publishing revenues, it's likely that a significant portion of the reduction in distribution costs came out of Diamond's brokerage commissions on Marvel sales.


Marvel also disclosed some of its plans for next year.  In the licensing section, Marvel revealed that it expects 'retailer exclusives' to be a driver of profitability in 05.  It did not specify in what product categories it will do those retailer exclusive deals.  Marvel has licensed Marvel Masterworks content to Barnes and Noble for  exclusive trade paperback editions recently.  A focus on custom comics and in-school marketing are expected to be drivers of publishing growth. 


Marvel expects to have over $200 million in cash by the end of 2004.