It was three in the morning when Joseph A. Sutton, CEO of Happiness Express, first learned that his wife had put an alarm in their Mercedes. "Stand back," screeched the alarm, when a cat clambered over the car. "You are too close to the vehicle."
But rather than losing sleep, he turned his nocturnal wake-up into a new toy: A small kids' doorplate decorated with characters from the popular TV show, it bleats out "Stand back! This room is protected by the Mighty Morphin Power Rangers!" when intruders venture close. Within months, the doorplates hit the market--and together with Power Rangers gloves introduced in mid-1994, they've propelled Happiness Express forward since. With Power Rangers products accounting for 75% of sales, revenues for fiscal 1995 swelled 50%, to $60 million, while earnings rose 10%, to $7.5 million. That earned Happiness the No.1 spot on BUSINESS WEEK's 1995 Hot Growth Company list.
Since Sutton, 42, and his brother, Ike, Happiness Express' 46-year-old COO, founded the company in 1989, they've carved out a niche producing toys and accessories based on popular licensed characters. Longtime independent sales reps for small toy companies, the two figured they could do better on their own. By 1993, the brothers built a portfolio ranging from Walt Disney Co.'s Little Mermaid to TV's Simpsons. But it wasn't until a flashlight decorated with Barney, PBS' purple dinosaur, scored with kids that Happiness hit paydirt. Barney-related gadgets brought 55% of fiscal 1994 sales. When Barney fell below 1% a year later, Power Rangers picked up the slack.
And that raises a whopper of a question: What will replace Power Rangers when they fade? CEO Sutton says fears are misplaced. His strategy is to create products based on lots of licenses, then gear up production when one hits big: "We've proved to the industry that we know how to go where the action is."
RIGHT STUFFING? Still, Wall Street is worried. Since December, the stock has fallen from its high of around 17 to 12. "Every toy company that has derived more than 50% of its profit from one product has gotten into financial difficulty when that product cools off," says analyst Sean P. McGowan at Gerard Klauer Mattison & Co. He expects earnings to fall 33%, to $5 million in fiscal 1996.
To avoid that fate, Sutton is rapidly diversifying. The CEO has lured executives away from big rivals such as Hasbro Inc. and Tyco Toys Inc., and he's launching new product lines. And a whole new slew of licensed products is coming, including stuffed animals based on Nickelodeon's TV series AAAHH!!! Real Monsters. "We have a lot of things going on," says Sutton. "You can't grow unless you have a lot of different oars in the water." That's true--as long as the stream Happiness is rowing doesn't run dry.
By Lori Bongiorno in New York