Mattel(MAT) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales declined 4% as reported and 3% in constant currency compared to the prior year [7][14] - Adjusted gross margin increased 210 basis points to 53.1% [7][18] - Adjusted EBITDA improved 1% to $584 million [7][19] - Adjusted EPS grew 6% to$ 1.14 [7][19] - Free cash flow in the trailing 12 months improved nearly 50% to $688 million [7][20] Performance by Business Line - Dolls gross billings were down 14%, impacted by the prior year's success of the Barbie movie [15][8] - Vehicles gross billings grew 13%, driven by Hot Wheels and supported by streaming content [15][8] - Infant, Toddler, and Preschool declined 2%, while Fisher-Price grew 2% [16][8] - Challenger categories collectively grew 3%, with the Games category achieving double-digit growth driven by Uno [16][8] Market Data and Key Metrics Changes - North America declined 3% primarily due to the Barbie movie comparison [17] - EMEA declined 6%, also impacted by the movie-related comparison [17] - Latin America grew 2%, driven by gains in Mexico and Brazil [17] - Asia-Pacific grew 8%, driven by gains in India and Japan [17] Company Strategy and Industry Competition - The company continues to execute its multiyear strategy to grow its IP-driven toy business and expand its entertainment offerings [6][13] - The toy industry is expected to return to growth beyond 2024, driven by strong fundamentals and increased demand for toys [12][39] - The company is well-positioned competitively with a broad-based lineup of innovative products for the holiday season [12][13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a good holiday season, supported by positive retail sentiment and demand for toys [27][63] - The company anticipates growth in the fourth quarter and expects to gain market share [27][34] - Management noted that the toy industry continues to perform better than initially expected, with a modest decline anticipated for the full year [12][38] Other Important Information - The company has repurchased$ 268 million of shares through the first nine months of the year [7][20] - The Optimizing for Profitable Growth Program is expected to generate approximately $75 million of savings in 2024, exceeding the original target [22][58] Q&A Session Summary Question: Retail environment concerns and growth guidance for Q4 - Management noted that the toy industry is performing better than expected and anticipates growth in Q4, supported by consumer demand for well-known brands [26][27] Question: Margin outlook for Q4 - Management indicated that margins may be pressured due to expected cost inflation and the wrap of movie-related benefits [28][29] Question: Understanding POS and gross billings relationship - Management explained that retail inventory movements can be volatile and that they are well-positioned for the holiday season despite the decline in POS [31][33] Question: Factors driving optimism for industry growth in 2025 - Management highlighted strong industry fundamentals and the importance of toys in consumers' lives as key drivers for future growth [38][39] Question: Impact of retail partner payment term changes on free cash flow - Management confirmed no impact on free cash flow guidance despite changes in payment terms from a major retail partner [40] Question: Capital expenditures and share repurchase pace - Management discussed the acquisition of a new global design center and indicated that share repurchases will continue in line with capital allocation priorities [41][44] Question: Digital gaming initiatives and launch schedule - Management outlined the strategy for digital gaming, emphasizing the importance of extending physical play into the virtual world [46][48] Question: SG&A growth drivers - Management noted that SG&A is expected to increase slightly as a percent of sales due to investments in digital gaming and IT capabilities [49] Question: Changes in outlook for Power brands - Management stated there were no changes in overall category guidance or expectations for Power brands [64]