Mattel(MAT) - 2023 Q2 - Quarterly Report

Net Sales and Gross Billings - Net sales in Q2 2023 decreased by $148.5 million (12$1.09 billion compared to $1.24 billion in Q2 2022, primarily due to lower gross billings[93] - Gross billings in Q2 2023 decreased by$148.8 million (11%) to $1.23 billion compared to$1.38 billion in Q2 2022, with a 1% favorable currency exchange rate impact[96] - Consolidated net sales for the first half of 2023 were $1.90 billion, a 16$2.28 billion in the first half of 2022[116] - Gross billings decreased by 16% to $2.14 billion in the first half of 2023 compared to$2.54 billion in the first half of 2022, primarily due to lower billings in Action Figures, Building Sets, Games, and Other (-39%), Infant, Toddler, and Preschool (-28%), and Dolls (-6%), partially offset by higher billings in Vehicles (+6%)[119] Product Category Performance - Dolls gross billings increased by 10% in Q2 2023, driven by a 13% increase in Disney Princess and Disney Frozen products and a 9% increase in Monster High products, partially offset by a 5% decrease in Barbie products[96] - Infant, Toddler, and Preschool gross billings decreased by 28% in Q2 2023, with a 23% decline in Fisher-Price products and a 2% decline in Fisher-Price Friends products[96] - Vehicles gross billings increased by 11% in Q2 2023, driven by a 9% increase in Hot Wheels products and a 2% increase in Matchbox products[96] - Action Figures, Building Sets, Games, and Other gross billings decreased by 39% in Q2 2023, with a 20% decline in Jurassic World products and a 14% decline in Lightyear products[96] - Dolls gross billings in North America increased 11% in Q2 2023, driven by higher sales of Disney Princess, Disney Frozen, and Monster High products, partially offset by a 5% decline in Barbie sales[106] - Dolls gross billings increased by 14% to $201.4 million in Q2 2023, driven by higher sales of Disney Princess, Disney Frozen, and Monster High products, partially offset by a 6$190.2 million in Q2 2023, primarily due to a 23% increase in Hot Wheels products and a 3% increase in Matchbox products[111] - Action Figures, Building Sets, Games, and Other gross billings declined by 35% to $92.9 million in Q2 2023, mainly due to lower sales of Jurassic World and Lightyear products[111] - Barbie gross billings decreased by 23$459.6 million, while Hot Wheels increased by 6% to $560.1 million, and Fisher-Price decreased by 27$290.3 million[119] - Vehicles gross billings increased by 16%, primarily due to higher billings of Hot Wheels products[135] Operating and Net Income - Operating income in Q2 2023 decreased by $62.3 million (50$62.8 million compared to $125.1 million in Q2 2022[92] - Net income in Q2 2023 decreased by$39.2 million (59%) to $27.2 million compared to$66.4 million in Q2 2022[92] - Operating loss for the first half of 2023 was $52.3 million, compared to an operating income of$205.1 million in the first half of 2022[115] - Net loss for the first half of 2023 was $79.3 million, compared to a net income of$87.9 million in the first half of 2022[115] Gross Margin and Cost of Sales - Gross margin increased to 45.1% in Q2 2023 from 44.4% in Q2 2022, supported by favorable pricing actions (170 bps), cost savings from the Optimizing for Growth program (150 bps), and favorable currency exchange (90 bps)[98] - Cost of sales decreased by $89.4 million (13$597.4 million in Q2 2023, driven by reductions in product and other costs ($79.2 million, 14$9.2 million, 15%)[97] - Gross margin decreased to 42.7% in Q2 2023 from 45.2% in Q2 2022, impacted by unfavorable currency exchange, inventory management efforts, and cost inflation[111] - Gross profit for the first half of 2023 was $815.6 million, a 21$1,031.8 million in the first half of 2022, with gross margin declining by 240 basis points to 42.9%[115] - Cost of sales decreased by 13% to $1.09 billion in the first half of 2023, driven by a 14$860.6 million and a 17% decrease in royalty expense to $87.3 million[120] - Gross margin decreased to 42.9$129.7 million (18%) to $596.8 million in Q2 2023, with gross billings down$137.5 million (18%) to $637.4 million[105][106] - International segment net sales decreased by$13.7 million (3%) to $462.7 million in Q2 2023, with gross billings down$6.2 million and sales adjustments increasing by $7.5 million[109] - North America segment operating income decreased by$58.9 million (30%) to $140.0 million in Q2 2023, primarily due to lower gross profit[107] - Gross billings for the International segment decreased by 1$561.8 million in Q2 2023, compared to $568.0 million in Q2 2022, with a favorable currency exchange impact of 2 percentage points[110] - North America segment net sales decreased by 22$1.03 billion in the first half of 2023, with gross billings down 22% to $1.11 billion, primarily due to lower billings across all categories[126][127] - North America segment operating income decreased by 50$184.0 million in the first half of 2023, driven by lower gross profit[131] - Net sales for the International segment decreased by 8% to $806.8 million in the first half of 2023 compared to$880.2 million in the same period of 2022[133] - Gross billings for the International segment decreased by 8% to $970.4 million in the first half of 2023 compared to$1.05 billion in the first half of 2022[134] - Sales adjustments decreased to $163.6 million in the first half of 2023 from$174.1 million in the first half of 2022, with sales adjustments as a percentage of net sales increasing to 20.3%[136] - Net sales for the American Girl segment decreased by 16% to $27.6 million in Q2 2023, primarily due to lower billings of Girl of the Year dolls[113] - Net sales for the American Girl segment decreased by 10$61.1 million in the first half of 2023 compared to $68.1 million in the same period of 2022[139] Cash Flow and Financial Position - Cash flows used for operating activities improved by$99.4 million to $325.6 million in the first half of 2023 compared to the first half of 2022[89] - Mattel executed approximately$50 million in share repurchases in the first half of 2023, with $153.2 million remaining under the share repurchase program as of June 30, 2023[89] - Cash and equivalents decreased by$461.3 million to $299.9 million at June 30, 2023, from$761.2 million at December 31, 2022, primarily due to operating activities, capital expenditures, and share repurchases[149] - Cash flows used for operating activities were $325.6 million in the first half of 2023, compared to$425.0 million in the first half of 2022, driven by lower working capital usage[147] - Accounts receivable increased by $30.7 million to$890.9 million at June 30, 2023, from $860.2 million at December 31, 2022, due to timing of sales and collections[150] - Inventories increased by$77.6 million to $971.6 million at June 30, 2023, from$894.1 million at December 31, 2022, primarily due to seasonal inventory build[150] - Total debt, including short-term borrowings, was $2.33 billion at June 30, 2023, flat compared to December 31, 2022, but decreased from$2.58 billion at June 30, 2022, due to repayment of $250.0 million in senior notes[153] - Stockholders' equity decreased by$93.9 million to $1.96 billion at June 30, 2023, from$2.06 billion at December 31, 2022, primarily due to net loss and share repurchases[154] - Mattel's cash and equivalents at June 30, 2023, were $299.9 million, with$211.7 million held by foreign subsidiaries, including $56.2 million in Russia[144] Taxes and Provisions - Provision for income taxes decreased to$14.4 million in Q2 2023 from $26.6 million in Q2 2022, driven by lower income before taxes[102] - Provision for income taxes was a benefit of$12.6 million in the first half of 2023, compared to an expense of $50.5 million in the first half of 2022, driven by lower income before taxes and lower discrete taxes[125] Optimizing for Growth Program - Mattel expanded the Optimizing for Growth program, increasing targeted annual gross cost savings from$250 million to $300 million, with estimated total cash expenditures of$155 to $185 million[140] - Mattel recorded cumulative severance and other restructuring charges related to the Program of approximately$193 million, with cumulative cost savings of approximately $330 million as of June 30, 2023[142] Currency and Financial Risks - Mattel is exposed to financial market risk resulting from changes in interest and foreign currency exchange rates[145] - Mattel estimates that a 1$0.01 impact on net income per share[164] - Mattel uses foreign currency forward exchange contracts to hedge exposure, with maturity dates of up to 24 months, primarily for inventory and intercompany transactions[163] - The company monitors counterparties in hedging transactions to manage credit risks, with risks considered in the fair value measurements of foreign currency forward exchange contracts[146] - Mattel's cash and equivalents are diversified among counterparties and securities to minimize risks, with an emphasis on safety and liquidity of principal[146] - Mattel designated the U.S. dollar as the functional currency for its Turkey subsidiary starting April 1, 2022, due to the projected three-year cumulative inflation rate exceeding 100%[165] - Mattel recorded $45.4 million of currency translation adjustments in accumulated other comprehensive loss related to its Argentina subsidiary liquidation[166] - The liquidation of Mattel's Argentina subsidiary was substantially completed during the fourth quarter of 2022[166] - Cumulative currency translation adjustments from the Argentina liquidation were recognized as a loss in other non-operating expense in Q4 2022[166]