Mattel, Inc. (MAT) Earnings Call Transcript & Summary

Building on that content lineup, you touched on some of the power brands and some of the drivers of the power brands over the next couple of years. And Ynon, I think for 2 years post the Barbie movie, which was a fantastic success for Mattel, more broadly brought a lot of attention to the brand. What do you see as the next steps for the Barbie brand from here? And how do you see innovation in potential movie sequels? You mentioned the animated Barbie movie coming about, but maybe a live-action sequel and point down the line fitting into the strategy?

Barbie is such an incredible brand that never sits still. Barbie is one of the most brand -- the most known brands in culture, and more than culture. It's not just a toy. It's a pop culture icon. And we could not be more excited about Barbie's development, both in terms of product with more innovation -- more breakthrough innovation, extending the lines, developing exciting packages -- packaging rather and continue to involve the brand in new and exciting ways. And of course, outside the toy aisle in content and different experiences that are coming your way will be another way to -- another form of engagement and excitement for fans. What we're also seeing is a growing adult fan base, adult collective fan base. This is the key part of our strategy, it's what's also driving the industry. The industry is being driven and lifted by adult collectors, and this is part of our own strategy, especially with our power brands. We have such a large built-in fan base of older people that used to be fans when they were kids and now have grown up and continue to engage with our brands. So Barbie is benefiting from that as well. Expect more innovation in 2026. We will see improving trends in '25 and then more exciting product coming out in 2026. The movie -- the animated movie we talked about. We haven't said anything about a live-action movie, but of course, our goal is to develop film franchises. We've always said that this is not just about Barbie, but in general, when we make movies, our goal is to create film franchises and continue to develop that over a period of time.

Are there any upcoming catalysts you'd point investors to more broadly across your doll portfolio as we look into '26 and beyond, where you could start to see this content flywheel start to materialize and maybe an acceleration in revenue growth?

Sure. Within the dolls category, we have very exciting brands that are doing really well and growing American Girl, which had the 3 consecutive quarters of growth that is returning to profitability and on a great trajectory. Very excited about American Girl continued development. Monster High, which is expanding its global rollout. This is a brand that was a huge business for Mattel about 10 years ago. It came and went. We relaunched it now with support of content on Nickelodeon and YouTube with the movie in development right now. And so there's more -- a lot more to come around the Monster High. There's a Polly Pocket, which is having also very good momentum with a lot of innovation, a bit of nostalgia, but more currency and cultural relevance. Disney Princess is an important part of our portfolio. This is a brand that we treat as our own, very proud about that partnership. And we're seeing also collaboration between Disney Princess and American Girl. So we find ways to excite and delight fans through cross-collaboration between our brands and very exciting execution. And as I said, continuing to tap into the adult collectors that have an emotional relationship with our brands that is something we're tapping into with great product that is catering for that segment with curated products that we sell on Mattel Creations. This is our own direct-to-consumer website that is targeting adult collectors, different price points, different packaging. And all in all, just another form engaged fans in new ways outside of the traditional form of retail.

Hot Wheels, continue to see impressive growth. I think it's on track for another record year. And this is just a brand that keeps -- the keeps on growing. What drives further growth from here in the Hot Wheels brand? How do you get at the next level?

We feel that there's so much more runway for Hot Wheels. As you said, notwithstanding the fact that we are on track for an eighth consecutive all-time high, record high for the brand. It is about product innovation, expanding not just the product line itself, but also the play system. We're introducing this year a new track set that will -- in many ways, will completely reinvent the play pattern of connecting and attaching the tracks that will be very easy to do with one hand and also for younger kids as successful as the contracts have been. This is a whole new level of innovation. We are also seeing very exciting partnerships with brands like F1 and Ferrari, which is another form of growth. We're launching more games, mobile games, video games, which is a different form of engagement, but clearly a play panel that lends itself so perfectly for this brand. A movie that is in development. We talked about that produced by J.J. Abrams and directed by Jon Chu. And continuing to tap into the adult collector where we see incredible engagement for Hot Wheels. And I'll give you one interesting statistic, which is Hot Wheels the basic car we sell for $1.25. This is the #1 selling item in the industry, the #1 selling toy in the industry. And we also sell Hot Wheels collector set in partnership with Daniel Arsham, a very known artist for $700 on the Mattel side, Mattel creation side. So that variety of offering and price points is maybe the best way to describe the breadth of this brand. And last but not least, we are -- we just launched this summer building set product, the collector -- Hot Wheels collector building set, which is off to a very promising launch, a very promising start. This is a new form of innovation for us. Outside of the traditional die-cast category, this is in building sets, and it's off to a great start, and we'll see how far it goes.

Do you feel like there's any learnings or best practices from the Hot Wheels brand and how that business has been run over the last 5,10 year that you feel like might be applicable to the rest of the brand portfolio, perhaps across your doll portfolio, Fisher-Price and Infant, Toddler & Preschool, the Brick line that Mattel has?

Yes. I think this is -- going back to your earlier question about our organizational structure and how we think about brand management. And in many ways, Hot Wheels does represent in the best possible way our playbook and how we take a brand that has been around for 58 years, and started as a toy as a die-cast vehicle and continue to evolve and reimagine what it represents. What is the relationship between the brand and the brand fans. And the evolution of the play pattern in the play system from an item to a play -- an entire system of play, garage, tracks and interaction between different parts of the portfolio, all the way to content and games from television to short-form content or movies, big live action, theatrical movies continue to evolve in how we market the brand with the tours that we organize around the world, with the Monster Trucks, live events that we organize around the country that continue to grow and evolve. So you continue to find more touch points, more opportunities to engage fans and reimagine what the brand represents. It really is about tapping into car culture. This is not about selling an item off a shelf. It's how do you embrace car culture. And we're always proud to say that we actually own and run the most -- the #1 selling car in the world. We make hundreds and hundreds of millions of cars a year. And with new different sizes and different capabilities that we bring to the table, we believe that there's still a lot of runway for the brand to continue to grow and evolve and reimagine new forms of play.

Fisher-Price, really entire Infant, Toddler & Preschool category more broadly has faced some challenges in recent years. Just curious to get your updated take on maybe why you think that's been the case? And then looking ahead, opportunities to return the category for you to growth over the next couple of years, what does that strategy look like?

Fisher-Price is the #1 brand within the Infant, Toddler & Preschool category. It's been around for over 90 years. It's actually older than Mattel and is a very trusted brand that parents recognize as something that they can relate to. And of course, we invest heavily in developing products that stand up to the highest level of innovation. The Fisher-Price brand has been stated over the last 6 years. What decline within the category has been the preschool entertainment, which is a volatile part of the category driven by brands. And 2 lines of business that we've exited proactively, Baby Gear and Power Wheels. And these lines have been less productive for us in terms of profitability. And we have been exiting these parts of the category as a whole over the last few years. This year, 2025, would be the final year where we see -- going to see major impact of this strategic of those 2 lines. But as a whole, we are very positive about the category. The Fisher-Price Wood, the Wood line is off to a very promising start. We expect that to continue to grow and evolve. Little People is a thriving brand that is becoming its -- seeing its own moment in culture, well outside of the preschool category or the Infant, Toddler & Preschool category, with adult collectors and a growing fan base. And we are very confident about the road map for Fisher-Price as a key leading brand to Mattel. And of course, the entire category as we strengthen our capabilities with more innovation, more ingenuity and evolving the play pattern for young kids with a lot of quality that we inject into the product line.

Before I get the margins and capital allocation, Ynon, one more question for you just on the content slate on the partner side. So the toyetic contemplate this year on the movie front has been much improved versus years past, coming out of COVID, coming out of the actors and writer strike. We've had Minecraft, Jurassic World. So for this year, you have the Wicked movie come in, sequel coming in, in the holiday season. How important is the return of the toyetic toy slate for Mattel? And as you look at how the business and the slate stacked up going into this holiday season, how does that compare to last year? And to what extent do you think it will be a driver of growth?

Yes. The return of toyetic movies is, of course, a positive for the industry. It brings buoyancy not just to the actual movies or the specific categories that correspond with the movies, but to the industry as a whole. So it is good to see that. Theatrical movies are playing an important role, but also movies on streaming platforms. Actually, we're seeing a lot of engagement. The K-Pop has done really well for Netflix, and we're seeing cultural phenomenas -- cultural phenomena happening not just around the theater, theatrical releases, but also on streaming platforms, and this is a good thing. And we expect that to continue to be a driver for the industry, a driver for Mattel. And this is where we excel in that we are playing both in our own domain, our movies that we are turning into exciting theatrical releases, but also as a trusted partner for the major players, the major entertainment companies that release big movies that trust Mattel to create exciting products and leverage our capabilities to offer exciting product lines tied to these movies.

I want to pivot to margins, Paul. You mentioned earlier, accelerating cost savings, $60 million to $80 million for this year along the program of operating for profitable growth. Beyond these cost savings, what do you see as the key levers growth in margins over the course of 2025 and '26?

If I step back and look at our trajectory from 2017 to now, we have accomplished impressive performance. Operating margins increased by 14 points from negative to almost 14. Gross margins up 13 points, close to 50%, around 50% now. We have optimized our SG&A, 300 basis points. We have optimized our A&P 400 basis points. And that's in our DNA. That's exactly what we do, and that's what we should continue to do, particularly now enabled by the supply chain efficiencies and that culture of we control our costs, we control, what's controllable and we'll continue to do that. The proof is in the past, and we'll continue to do that. We see ample opportunity to continue to optimize our margins. That's why I feel confident about reiterating our guidance today. I talked about the many factors that give us the confidence that we will be landing in the right place from a top line perspective and also from a profitability perspective. So very confident about the future based on the past as well.

Last question on capital allocation, perhaps for both of you, just in terms of thinking about reinvesting in the business and managing capital returns. You have the share repurchase program that's currently out there. Where do you see opportunities, I guess, first, to reinvest back into the business? And second, as you think about deploying some of the excess capital that you have, your balance sheet is in a fantastic spot, where do you see opportunities to do so?

We're great cash generators. We have also seen a significant turnaround in that regard, and we are -- we have a strong balance sheet as well. Priorities from a capital allocation perspective are very clear, and we will continue to invest in our business, first and foremost. You see that manifesting itself in both the CapEx that is needed to continue to expand and grow, for example, the Vehicle segment, but also we invest, although it's not CapEx, it's P&L as well in digital gaming and in other parts of our growth strategies. And importantly, share buybacks. You have seen that from 2023 up to now, up to Q2, we have repurchased $813 million. And if you -- and we'll continue to be active as we speak. That's about 14% of the market cap. And with the strength of our balance sheet, with the cash flow generation, we will continue to make the right choices for value creation for our shareholders.

And I would just add that we are today in a place where we have arguably the strongest balance sheet we've ever had. In terms of the -- whether it's leverage ratio, cash generation and overall continued focused on managing a strong resilient balance sheet that gives us flexibility. And this is something we intend to continue to maintain. It's an important feature to have a strong balance sheet. Buying back shares is the best use of cash today that we see in front of us given what we see as a big gap between the intrinsic value of the company, not just the history, but the potential of where we're going from here to the -- relative to the share price. So this is our best form of investment at this point. But as a company, we are focused on maintaining a strong balance sheet that will continue to give us flexibility to execute our strategy and a key part of what we do.

It's a great place to end. Ynon and Paul, thank you very much for joining us today.

Thank you.

Thank you.