U.S. Bancorp Piper Jaffray Publishes Toy & Video Game Industry Primer

U.S. Bancorp Piper Jaffray Publishes Toy & Video Game Industry Primer 


MINNEAPOLIS, Nov. 17  /PRNewswire-FirstCall/ -- The $21 billion U.S. toy
industry is the largest toy market in the world. It is a mature industry at a
crossroads, looking for ways to grow. Since 2002, the industry has been
experiencing sales declines. Given these facts, what will this holiday season
bring for the toy industry? What will be the key areas of growth? Will the video
game sector continue to gain popularity? U.S. Bancorp Piper Jaffray Senior
Leisure and Entertainment Analyst Tony Gikas answers these questions and much
more in a recently published in-depth report titled, Toy & Video Game Industry
Primer. The report is divided into four chapters: Traditional Toy Overview, Toy
Industry Trends, Investing in Toy Stocks and The Video Game Industry.

Traditional Toy Overview:

The United States toy market constitutes approximately 37 percent of worldwide
retail toy sales, based on the most recent data from the NPD Group Worldwide.
Gikas reports that the $21 billion domestic toy industry stands at a crossroads
as overall growth continues to slow. According to the NPD Group, retail toy
sales actually declined two percent in 2002 to $20.2 billion. The industry has
essentially matured, product quality is below average and economic conditions
have softened. Sales of traditional toys have decreased four percent
year-to-date through the month of September.

"Overall we anticipate toy sales in 2003 will increase approximately two percent
to $20.8 billion," said Gikas. "Our estimate assumes an increase in consumer
confidence and spending, a strong product lineup, improving retail backdrop and
a stable geopolitical outlook."

Toy Industry Trends:

A big trend in the industry is the large mass merchant retailers capturing
market volume through aggressive advertising and competitive pricing, taking
share from small and specialty retailers. Currently, Wal-Mart (WMT, $55, #=),
Toys "R" Us (TOY, $12.74, #=) and Target (TGT, $38.64, #>=) account for 50
percent of domestic retail toy sales. "As more and more toy dollars are spent in
mass merchant stores, these retailers continue to garner additional power with
vendors, increasing the importance of key retail relationships," said Gikas.

A key factor impacting toy sales is the size of the addressable market.
According to Gikas, demographic trends have stabilized and turned upward.
According to the 2000 census, the United States has approximately 59 million
children under the age of 15 years. The overall population trends for U.S.
children have stabilized since the mid-1990s following five-plus years of rapid
growth in the birth rate. Children aged 12-13 years old today, born in the early
1990s mini baby boom, have largely grown beyond their peak traditional toy
playing years and are now more interested in sports and other forms of
entertainment, including video games. On the other hand, a positive factor
influencing toy sales is the large and affluent baby boomer population, which is
entering grandparenthood and as a result beginning to drive additional demand as
it purchases toys for its grandchildren.

Investing in Toy Stocks:

Gikas believes toy stock fundamentals are better than they have been in many
years as improved balance sheets, streamlined product portfolios and reduced
costs have left the companies lean and in a position to be aggressive after
years of acquisitions and redundant infrastructure. "The prospect of an
improving economy, coupled with improving fundamentals, makes toy stocks more
attractive in the current period than they have been during the last five years.
Generally speaking, we suggest investors increase their toy exposure late in the
calendar year (November-December) and reduce exposure moving into the second
half of the year."

In the report, Gikas talks about the challenging retail environment that exists,
including challenges from competition, age compression and less favorable
demographics that continue to weigh on the overall category. "Considering the
leading toy product lines look much improved, we estimate domestic toy sales
will grow near 1-2 percent during 2003," said Gikas. "In general, we expect that
the larger toy manufacturers like Hasbro (HAS, $22.19, #>), Mattel (MAT, $19.38,
#=) and LeapFrog (LF, $34.35, #>) will take share at the expense of small
manufacturers in unfavorable categories."

Overall, Gikas points out that historically, toy stocks exhibit a significant
amount of seasonality and are most attractive at the end of the calendar year as
anxious investors reduce exposure prior to earnings releases. "The seasonality
of toy stocks reflects out-performance during the first half of the calendar
year and underperformance during the second half of the calendar year relative
to the overall market," said Gikas.

The Video Game Industry:

Extensive debate exists as to which stage of the video game cycle the market is
currently experiencing. "We believe spring 2003 marked the midpoint of the
current video game cycle, in terms of the product life cycle of current
generation video game hardware," said Gikas. "We anticipate the next generation
of video game hardware will be introduced in autumn 2006, depending upon the
competitive positioning of the video game console manufacturers and existing
demand for current generation products."

"In addition, we expect 2003 will be the peak year for unit sales of current
generation hardware sales. We are forecasting that 22.3 million hardware units
will be sold in North America in 2003, a modest increase from 21.1 million units
in 2002 and will subsequently decline in 2004 to sales of 20.3 million units as
the installed base of video game hardware becomes saturated."

To receive a copy of Toy & Video Game Industry Primer, clients and members of
the media should contact Susan Beatty at  or 612-303-5680.

U.S. Bancorp Piper Jaffray, a subsidiary of the consolidated group of U.S.
Bancorp, is a focused securities firm comprised of two revenue-generating
segments -- Capital Markets and Private Client Services.  Clients of both
segments are supported by Investment Research, an independent group reporting to
the CEO. The firm provides a full range of investment products and services to
individuals, institutions and businesses. The firm has over 124 offices in 25
states across the country. U.S. Bancorp offers a comprehensive range of
financial solutions through U.S. Bank, U.S. Bancorp Asset Management, U.S.
Bancorp Investments and U.S. Bancorp Piper Jaffray. For more information on U.S.
Bancorp Piper Jaffray, visit http://www.piperjaffray.com/ .

Rating Definitions

Investment Opinion: Investment opinions are based on each stock's return
potential relative to the overall market*, not on an absolute return.

Strong Buy: Expected to outperform the relevant broader market index over the
next 6 to 12 months. An identifiable catalyst is present to drive appreciation.

Outperform: Expected to outperform the relevant broader market index over the
next 12 to 18 months.

Market Perform: Expected to perform in line with the relevant broader market
index over the next 6 to 12 months.

Underperform: Expected to underperform the relevant broader market index over
the next 6 to 12 months. * Broader market indices = Russell 2000 and S&P 500

Volatility Rating: Our focus on growth companies implies that the stocks we
recommend are typically more volatile than the overall stock market. We are not
recommending the "suitability" of a particular stock for an individual investor.
Rather, it identifies the volatility of a particular stock.

Low: The stock price has moved up or down by more than 10% in a month in fewer
than 8 of the past 24 months.

Medium: The stock price has moved up or down by more than 20% in a month in
fewer than 8 of the past 24 months.

High: The stock price has moved up or down by more than 20% in a month in at
least 8 of the past 24 months. All IPO stocks automatically get this volatility
rating for the first 12 months of trading.

The following disclosures apply to stocks mentioned in this report if and as
indicated: (#) U.S. Bancorp Piper Jaffray (USBPJ) was making a market in the
Company's securities at the time this research report was published. USBPJ may
buy and sell the Company's securities on a principal basis. (^) A USBPJ analyst
who follows this Company or a member of the analyst's household has a financial
interest (a long equity position) in the Company's securities. (@) Within the
past 12 months, USBPJ was a managing underwriter of an offering of, or dealer
manager of a tender offer for, the Company's securities or the securities of an
affiliate. (>) USBPJ has either received compensation for investment banking
services from the Company within the past 12 months or expects to receive or
intends to seek compensation within the next three months for investment banking
services. (~) A USBPJ analyst who follows this Company, a member of the
analyst's household, a USBPJ officer, director, or other USBPJ employee is a
director and/or officer of the Company. (+) USBPJ and its affiliates, in
aggregate, beneficially own 1% or more of a class of common equity securities of
the subject Company. (=) One or more affiliates of U.S. Bancorp, the ultimate
parent company of USBPJ, provided commercial banking services (including,
without limitation, loans) to the Company at the time this research report was
published.

Nondeposit investment products are not insured by the FDIC, are not deposits or
other obligations of or guaranteed by U.S. Bank National Association or its
affiliates, and involve investment risks, including possible loss of the
principal amount invested.

USBPJ research analysts receive compensation that is, in part, based on revenues
of USBPJ Equities and Investment Banking, which include overall investment
banking revenues. USBPJ research analysts who follow this Company report to the
Head of Investment Research who, in turn, reports directly to the Chief
Executive Officer of U.S. Bancorp Piper Jaffray.

This material is based on data obtained from sources we deem to be reliable; it
is not guaranteed as to accuracy and does not purport to be complete. This
information is not intended to be used as the primary basis of investment
decisions. Because of individual client requirements, it should not be construed
as advice designed to meet the particular investment needs of any investor. It
is not a representation by us or an offer or the solicitation of an offer to
sell or buy any security. Further, a security described in this release may not
be eligible for solicitation in the states in which the client resides. Officers
or employees of affiliates of U.S. Bancorp Piper Jaffray, or members of their
families, may have a beneficial interest in the Company's securities and may
purchase or sell such positions in the open market or otherwise.

Notice to customers in the United Kingdom: This report is a communication made
in the United Kingdom by U.S. Bancorp Piper Jaffray to market counterparties or
intermediate customers and is exclusively directed at such persons; it is not
directed at private customers and any investment or services to which the
communication may relate will not be available to private customers. In the
United Kingdom, no persons other than a market counterparty or an intermediate
customer should read or rely on any of the information in this communication.

Securities products and services offered through U.S. Bancorp Piper Jaffray,
member SIPC and NYSE, Inc., a subsidiary of U.S. Bancorp.

Additional information is available upon request. 

DATASOURCE: U.S. Bancorp Piper Jaffray



CONTACT:  Susan Beatty, Public Affairs & Media Relations, of U.S. Bancorp

Piper Jaffray, [phone]



Web site:  http://www.piperjaffray.com/ 

Copyright