Release Date: October 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Mattel Inc (MAT, Financial) achieved significant margin gains, with adjusted gross margin increasing by 210 basis points to 53.1%, driven by supply chain improvements and cost savings.
- Free cash flow improved nearly 50% to $688 million over the trailing 12 months, reflecting strong cash generation capabilities.
- The company repurchased $268 million of shares in the first nine months of the year, demonstrating a commitment to returning value to shareholders.
- Hot Wheels had an outstanding quarter, growing 13% and is on track for its seventh consecutive record year, supported by a new multi-year licensing partnership with Formula 1.
- Mattel Inc (MAT) continues to expand its entertainment offerings, with several new film and television projects in development, including a Masters of the Universe live-action movie and a new Hot Wheels animated series.
Negative Points
- Net sales declined 4% as reported and 3% in constant currency, primarily due to tough comparisons with the prior year, which benefited from the success of the Barbie movie.
- Dolls gross billings declined 14%, with Barbie gross billings down 17%, reflecting the impact of the prior year's movie-related benefits.
- Retail inventory levels ended the quarter down high single digits, indicating potential challenges in aligning production with demand.
- The company's total market share declined slightly year to date, despite gains in specific categories like dolls, vehicles, and games.
- Adjusted SG&A expenses increased by 7%, driven by higher compensation expenses, which could pressure future profitability if not managed effectively.
Q & A Highlights
Q: Can you provide a quick sense of the retail environment and what gives you confidence in the growth guidance for Q4?
A: Ynon Kreiz, Chairman & CEO: The toy industry is performing better than expected. We anticipate growth in Q4, supported by consumer interest in well-known brands. The National Retail Federation expects holiday sales to grow, aligning with our internal research. We expect a good holiday season, sales growth, and market share gains.
Q: Why are margins expected to be more pressured in Q4 despite the toughest margin comp being in Q3?
A: Anthony DiSilvestro, CFO: We expect slight cost inflation in Q4 and some impact from the Barbie movie wrap. Additionally, our strategy involves shifting advertising to later in the year, which will increase advertising expenses in Q4, impacting margins.
Q: Can you explain the change in the top-line guidance to "comparable to slightly down"?
A: Anthony DiSilvestro, CFO: The change reflects our year-to-date results and outlook for the rest of the year. We still expect a good holiday season, with POS growth in Q4, sales increase, and market share gains for both Q4 and the full year.
Q: What are the factors driving your optimism for industry growth in 2025?
A: Ynon Kreiz, Chairman & CEO: The toy industry is a growth industry with strong fundamentals. We expect trends to improve, driven by consumer demand, strategic retailer prioritization, and a growing adult segment. We are well-positioned to capitalize on future growth with our investments in innovation and capabilities.
Q: How does the change in payment terms by a major retail partner affect your working capital and free cash flow guidance?
A: Anthony DiSilvestro, CFO: There is no impact on us. We continue to guide for $500 million in free cash flow, despite a slight increase in capital expenditures.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
