Mattel(MAT) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q2 2024 were $1.080 billion, a decline of 1% as reported, but comparable in constant currency [10][17] - Adjusted gross margin increased by 430 basis points to 49.2% [10][21] - Adjusted EBITDA improved by$ 23 million to $171 million, and adjusted earnings per share increased by$ 0.09 to $0.19 [10][23] - Free cash flow for the trailing 12-month period was$ 826 million, compared to $361 million in the prior year [11][24] Business Line Data and Key Metrics Changes - Dolls gross billings declined by 5%, while POS was flat; however, Mattel gained share in the dolls category [18] - Vehicles grew by 2%, driven primarily by Hot Wheels, which increased by 5% [19] - Infant, toddler, and preschool declined by 3%, but Fisher-Price grew by 11% [19] - Challenger categories increased by 1%, led by double-digit growth in games [19] Market Data and Key Metrics Changes - Gross billings declined by 2% in North America, EMEA, and Latin America, while Asia-Pacific increased by 7% [20] - Retail inventory levels were down high single-digits compared to the prior year, indicating a well-positioned inventory for the second half [20][80] Company Strategy and Development Direction - The company is focused on growing its IP-driven toy business and expanding its entertainment offerings, with a strong emphasis on profitability and cash generation [11][29] - New product innovation, increased retail support, and marketing efforts are expected to drive growth in the second half of the year [15][78] - The company is also looking to self-publish mobile games, leveraging its strong brand recognition to reduce user acquisition costs [53][54] Management's Comments on Operating Environment and Future Outlook - The toy industry is expected to decline modestly in 2024, but trends are anticipated to improve beyond that [14][33] - Management expressed confidence in achieving full-year guidance, citing strong fundamentals in the toy business and positive consumer sentiment [15][29] - The company is well-positioned for a good holiday season with new product launches and increased retailer support [15][33] Other Important Information - The company has repurchased$ 200 million of shares in the first half of 2024 and plans to continue share repurchases [11][24] - The balance sheet has improved significantly, with cash balances increasing to $722 million [25][26] - The company is on track to achieve or exceed targeted savings of$ 60 million in 2024 as part of its cost-saving initiatives [27][85] Q&A Session Summary Question: Update on consumer health from retail partners - Management noted that the toy industry performed better than anticipated in the first half and expects growth in the second half, driven by new product innovation and increased retail support [33] Question: Impact of freight volatility on financials - Management stated that they are well-positioned with supply chain capabilities and have accounted for anticipated impacts in their guidance [35] Question: Performance of other categories contributing to gross billings - Management highlighted significant growth in games and ongoing scaling of the Pokémon business, while action figures faced challenges [38] Question: Gross margin expectations for the back half of the year - Management expects some cost inflation but believes continued cost savings will offset this, maintaining guidance for gross margin improvement [50] Question: Disparity in stock valuation compared to competitors - Management acknowledged that the stock is undervalued and emphasized the company's strong performance metrics and future potential [57][58] Question: Selling and administrative expenses increase - Management explained that the increase was due to market-related pay increases and investments in IT and talent, with expectations for SG&A to be down in the second half [60] Question: Consumer product licensing business post-Barbie movie - Management indicated that while there will be a decline year-on-year due to the Barbie movie wrap, the licensing business continues to grow [68] Question: Retailer support and shelf space - Management discussed strong relationships with retailers and expectations for increased shelf space and promotional activities in the second half [72] Question: Trends in inventory levels - Management confirmed that both retailer and owned inventory levels are healthy and well-positioned for the upcoming holiday season [80]