RC2 to Expand Chuggington in U.S.

RC2 Corporation (RCRC) is planning a retail expansion of its Chuggington die-cast toy line in the United States going forward. The Chuggington line was launched in the U.S. on January 18, 2010 on Playhouse Disney. Subsequently, it was made available to major retailers in the U.S. in October 2010 and has been witnessing heightened consumer demand thereon.

Following the success and encouraging television ratings of Chuggington train play products in the U.S. Playhouse Disney, RC2 Corporation introduced its new Chuggington line at Toys "R" Us stores across the country and online at Toysrus.com in October.

Chuggington is a computer generated 3D series as well as a fully immersive interactive website. The series fascinates preschoolers with the adventures of three trainee engines. Ludorum, a global media company that builds children's entertainment franchises, is the creator of Chuggington. The new Chuggington toy line features action packed toys with developmental messages and storylines.

In early 2010, Chuggington made its retail launch in the U.K., Germany, France, Australia and Canada and has been well received. In mid 2010, the interactive range was released. In September 2010, the Chuggington Wooden Railway was released in Canada. Currently, it is sold only at Mastermind Toys.

However, by spring 2011, the toy line is expected to be available in Toys R Us Canada and other retailers. Chuggington also announced a partnership with MEGA Brands Inc. to produce a range of Chuggington construction toys under their globally recognized Mega Bloks brand. Mega Bloks Chuggington range will be available almost worldwide from autumn 2011 and in the United States from spring 2012.

In addition to the Chuggington master toy licensing rights, RC2 holds a 50% interest in the intellectual property rights of the toy line with Ludorum.

RC2's overall sales and profit were lower in the third quarter of 2010 compared with the prior-year period due to the transition in its preschool, youth and adult products categories. Nevertheless, we believe that the company will benefit from the spread of Chuggington and Dinosaur Train products in international as well as U.S. markets this year.

We are also positive about the Chuggington franchise. Following the show's successful run on Playhouse Disney and the product lines' ongoing oversees success; management expects Chuggington to enjoy robust demand and high sales in the fourth quarter of 2010 and beyond. We have a Zacks #2 Rank (short-term Buy recommendation) on the shares.

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