Q2 2020 Mattel Inc Earnings Call
Since or any listen only mode.
As a reminder, todays conference call is being recorded and will be approximately one hour in order to accommodate Q and a.
To ask a question during the Q and a session you will need to press star one on your telephone.
I would now like to introduce your host for today's call David spine usage.
Nice president of Investor Relations.
Mr spot you Mitch you may begin.
Thank you operator, and good afternoon, everyone. Joining me today, our non cries Mattel's, Chairman and Chief Executive Officer, Richard Dickson, Mattel's President and.
If operating officer, Joe using our Mattel's, Chief Financial Officer, and Anthony Disilvestro Executive advisor and Mattel's next Chief Financial Officer.
As you know this afternoon, we reported mattel's 2022nd quarter financial results.
We will begin today's call with the non Joe providing commentary on our results after which we will provide time free non Richard Jo Ann Anthony to take your questions.
To help supplement our discussion today, we have provided you with a slide presentation.
Our discussion slide presentation and earnings release reference non-GAAP financial measures, including gross sales adjusted gross profit and adjusted gross margin.
Adjusted other selling and administrative expenses.
Adjusted operating income and loss adjusted earnings and loss per share.
Earnings before interest taxes, depreciation and amortization or EBITDA.
Adjusted EBITDA and constant currency.
Please note that the sales figures referenced on this call will be stated in constant currency.
In addition, please note that gross sales related to our new plush products are included in our action figures building sets of games and other categories breakout, which are also referred to as challenger categories on this call.
The information required by regulation G regarding non-GAAP financial measures is included in our earnings release and slide presentation and both documents are available in the Investor section of our corporate website corporate Dot Mattel dotcom.
Before we begin I'd like to remind you that certain statements made during the call may include forward looking statements related to the future performance of our business brands categories and product lines.
These statements are based on currently available information and assumptions and they are subject to a number of significant risks and uncertainties that could cause our actual results to differ materially from those projected in the forward looking statements, including risks and uncertainties associated with Covidien 18 pandemic.
We described some of these uncertainties in the risk factor section of our 2018 annual report on form 10-K.
Our Q1 2020 quarterly report on form 10-Q.
Our earnings release, and the presentation accompanying this call and other filings, we make with the SEC from time to time as well as in our other public statements.
Mattel does not update forward looking statements and expressly disclaims any obligation to do so except as required by law.
Now I'd like to turn the call over to non.
Thank you for joining motto second quarter 2020 earnings call.
On behalf of retail I hope that you are staying healthy and safe.
We ended the quarter with extensive retail closures and distribution challenges and had to absorbed a full quarter of coal they'd 19 impact, but with demonstrated our execution capabilities and the resilience of our brands.
Although our total revenues were down they exceeded our expectations, particularly in North America, Barbie and games, what we saw sales increases.
Total company Pos improve significantly and was positive in the quarter and ecommerce continued to grow strongly in all regions.
Our ongoing efforts to restore profitability proved very effective with continued operational improvement additional cost savings and a meaningful increase in gross margin.
During this challenging time, our top priority has been to protect the health and safety of our employees and at the same time mitigate the disruption to our business.
We have also demonstrated our commitment to being a responsible corporate citizen and to drive positive social impact.
We continue to leverage our expertise products and resources to support our consumers our communities and the many frontline heroes around the world.
We also took a stand against systemic racism with the launch of our play therapy program developed to drive change and create new ways to support the black community.
Our commitment includes developing and recruiting black talent and creating products and experiences centered around diversity.
We are continuing to cultivate a work environment that promotes equality inclusion and impairment.
We recently announced our diversity and inclusion goals to increase female and minority representation at all levels of the organization.
We proudly shared that we have achieved 100% pay equity in the us for all employees performing similar work.
We know that much of our success is grounded in being a reached a diverse company and we are highly committed to continuing our progress.
Turning to the key highlights of our second quarter performance.
Gross sales were $850 million down, 15% as reported versus prior year and down 13% in constant currency.
Net sales were $732 million down, 15% as reported and down 13% in constant currency.
Reported gross margin was 43.8% an improvement over 410 basis points.
Adjusted gross margin was 44% also an improvement of 410 basis points.
And adjusted EBITDA was $31 million a decline of $11 million.
We are encouraged by the continued increase of our gross margin, which we achieved inspite of the revenue decline.
Looking at our gross sales in constant currency.
Most of our categories had double digit revenue declines primarily due to the impact of return closures and local restrictions in the international regions.
Almost half of the total company revenue decline was due to action figures with the expected impact from toy story four post its movie launch year, which we were not able to offset given the industrywide delay in theatrical film releases.
With that said.
Barbie performed exceptionally well with revenues up 10% for the quarter.
Our games category also continued to perform particularly well driven by a very strong performance of owner and we benefited from the successful launch of Star Wars, the child plush product line.
One of the key positive highlights for the quarter was the strength of our Pos.
Total company Pos was up high single digits.
Significant improvement compared to the first quarter, where Pos was down mid single digits.
The strong Pos trends throughout the quarter were driven by our dogs, an infant toddler and preschool categories.
Well, we are a global leader and our games category, where we are a challenger.
Our doll category Pos was up double digits with very strong demand for Bobby which was up more than 35%.
Fair NPD, Bobby gain market share in the Dallas category in the us in the quarter and was the number one point property in the U.S. for five consecutive weeks.
Our infant toddler and preschool category Pos was up double digits, driven by strong demand for Fisher price core product and the ongoing progress of our Fisher price turnaround strategy.
POS in our vehicles category was down overall due to the ongoing whittle closures in key international regions, which affected impulse purchases.
The challenge of categories were flat, but we saw very strong Pos momentum in games, which was up double digits driven by lunar as well as in our new clash offerings with the successful launch of Star Wars the child.
We will not continue to be the number one game in the U.S. According to NPD.
As we had anticipated.
The industry shifting back to its breed Colgate 19 category consumption patterns in our products are resonating with consumers.
Our total revenues clearly trail Pos as retailers tightly managed the working capital and inventories given the uncertainty related to covert nine pm.
Another key positive highlight for the quarter was our growth in ecommerce.
Ecommerce Pos was up sharply in every region, including dabbling in North America, where it represented approximately one third of our total volume in the region.
We continue to work closely with all of our retailers to support them as they adapt and optimize this growing channel.
Our flagship franchises innovative toys and strong demand creation position us well to continue to lead online and we expect the momentum. We currently have to further accelerate the execution of our ecommerce strategy.
Regional performance for the quarter continue to be directly impacted by written closures and local restrictions.
By the end of the second quarter about 4% of all retail outlets that sell our products representing about 8% of our revenue base were closed.
This is compared to about 30% of the retail outlets that were closed exiting the first quarter.
Notwithstanding the impact on the second quarter. The gradual reopening of stores is a positive development for the second half of the year.
Looking at regional performance and grow sales in constant currency for the quarter.
In North America gross sales rebounded and were up 3% driven by our strong execution. During this challenging time.
About 2% of our retail outlets were close at the end of the period.
POS was up double digits for the quarter.
In EMEA.
Gross sales declined 19% due to the high degree of specialty and Department store closures, we experience early in the quarter.
By the end of the quarter only about 1% of our retail outlets remained closed.
In spite of the revenue decline.
The west was up low single digits, and we grew share in the six in the quarter and year to date per NPD.
In Asia Pacific.
Gross sales declined 29% due to extensive lockdowns in southeast Asia in India with solid performance in Australia.
Approximately 7% of our retail outlets were close exiting the quarter and Pos was down double digits.
In Latin America, grocers declined 43% due to the closure of specialty and department stores.
About 28% of our retail outlets were close exiting the quarter and Pos was down double digits.
As we said during the first quarter earnings score.
Our work over the past two years to develop a flexible and results oriented organization is serving us well as we were able to significantly improve gross margins inspite of the revenue decline.
Our supply chain.
Also continued to perform well, despite temporary closures or certain manufacturing and distribution facilities early in the quarter.
We realized $80 million of savings with our capital light program in the quarter and continue to expect to be well above our full year target to reduce SK use by 30%.
As mentioned before with the cumulative savings of $875 million from structural simplification that we have already achieved.
We remain on track to exceed $1 billion of savings exiting 2020.
Looking to the second half of the year, we are confident about our path forward and remain focused on the execution of our strategy to transform a tail into an IP driven high performing toy company.
Currently all of our factories are open with minimal disruption to operations as we enter the peak production season.
Based on the momentum were seeing the positive Pos trends and low retail inventories exiting the quarter, we're planning for strong demand for our products.
An expectation of an improved revenue performance in the second half compared to the first half, including the all important holiday season.
With that said Inspite of the positive outlook, we caution you to recognize the Corbett 19 uncertainty that still remains globally in the extent of rental closures, particularly in key international markets, which are likely to negatively impact revenue performance in the.
Second half on a year over year basis.
Looking beyond 2020, having achieved tangible progress across every part of the enterprise entering this year, we expect to manage through the disruption and continue to execute on our short to medium strategy to restore profitability and regain topline growth.
Taking a broader view.
We see several macro industry factors that we believe will benefit us going forward.
The Pos trends in the second quarter are a testament to the resilience of the toy industry in challenging economic times as parents prioritize spend on their children and look for high quality products at affordable price points.
Retailers are aggressively looking to attract consumers to their online or brick and mortar stores and toys have always been considered a strategic category.
Our retail partners have done a remarkable job adapting to the current operating environment and we expect them to continue to drive and made the consumer demand for toys.
According to Euromonitor, the traditional toys and games industry is forecasted to grow at a CAGR or 4.9% on a global basis through 2024 based on fixed exchange rates at nominal value.
This is expected to be driven by the dose category, which is expected to grow at a 10% cagar, which bodes well for material.
We also continued to advance our mid to long term strategy to capture the full value of our IP.
While field production schedules have been impacted due to cope with 19.
We have been actively advancing the creative work on several of our film and television projects.
Interest in our IP catalog remain strong and we recently announced in roofing project would Universal Pictures Basin wish bone the hit television series from the nineties.
That would be produce alongside Academy Award winner Peter Farley.
Mattel films now has nine movie projects in development.
We have released new episodic content related to Barbie, Pos and Polly pocket in the quarter.
Production work on our two Masters of Universe animated series is ongoing and we'll look forward to launching these on Netflix next year.
Our digital gaming initiatives continue to accelerate.
In the second quarter Mattel's mobile free to play card and board games have provided much needed social game play for consumers around the world to connect with friends and family.
All of which was a top five downloaded card game in the us App store in the quarter.
Continues to scale with over 10 billion games played to date.
And face then well tool a top 10 downloaded card game in the US App store has seen over 20% growth in daily players during the quarter.
This week, we announced that Diana Ferguson, Chief Financial Officer of Cleveland Avenue has been appointed to our board of directors and will become the chair of the audit Committee.
Diana is a highly experienced executive who brings a proven track record of corporate financial management and strategic planning to our board.
We look forward to benefiting from her insights and perspectives as we continue to execute our strategy.
Before I close I would like to welcome Anthony Disilvestro to the Mattel team.
Anthony has joined the company as executive advisor and we'll assumed the role of Chief Financial Officer on the date following the filing of our second quarter 10-Q.
Anthony is a world class executive with a proven track record of driving transformation and operational performance and he joins Mattel with nearly four decades of financial and leadership experience. Most recently, serving as a chief financial officer of Campbell Soup company.
He will help carry forward the momentum of the turn around as one of us maintain a disciplined approach to cost management.
I look forward to working with Anthony to continue to transform a tail into an IP driven high performing toy company and create long term shareholder value.
I also want to sincerely thank Joe for his important contributions to retail over the past three years as a valuable member of our leadership team and for his commitment to facilitating a smooth transition of the CFO role.
Joe has played a key role in the significant progress we made in reshaping our operations restoring profitability and positioning the company for growth.
I am grateful for his partnership and friendship.
With that Anthony will say, a few words before Joe covers the financials in more detail.
Thank you know.
I've admired Mattel for long time and had been a consumer of its many toys.
Mattel is a great company with a strong portfolio of brands, which had stood the test the time and continue to be relevant with today's consumers.
The strategy to transform Mattel into an IP driven high performing toy company is compelling.
The toy industry is showing resiliency in these challenging time and metallic demonstrating that is well positioned to continue its path to long term profitable growth.
I am excited to work closely with an arm the leadership team and the finance organization to execute our strategy and I look forward to engaging with our shareholders and the investment community at large going forward.
Before I turn the call over to Joe I want to thank him for his support during the transition Joe.
Thank you Anthony and good afternoon, everyone before I begin let me just say, it's been a pleasure working with a non in the entire Mattel team over the past few years I'm extremely proud of our accomplishments and the progress made to date.
We have built a significantly more flexible and efficient business. They will continue to serve the company well in the years to come out.
I wish everyone at Mattel and those of you listening to our call today, nothing but success.
I will now provide more details on the company's second quarter results.
Starting with gross sales by category in constant currency.
For the quarter Dow's revenue declined 2%, primarily due to owned brands and American girl.
Partially offset by significant strength in Barbie.
Barbie revenues grew 10% in the quarter, we saw revenue growth across almost all segments of the brand and continue to see strong momentum for color reveal a recent innovation.
American Girl revenue was heavily impacted by continuing retail closures, partially offset by strong direct to consumer performance, which more than doubled year over year, resulting in a 16% decline.
We continue to build our digital flagship capabilities and launch new product offerings and are encouraged by the high double digit online sales increased in the quarter.
Vehicles category revenue declined 23% in the quarter, primarily due to hot wheels, and the expected decline of Disney's cars vehicles in a non movie year.
How wheel sales were down 19%, primarily due to international retail disruptions, including a high number of store closures.
Despite double digit positive Pos in North America overall hot wheels, Pos was down mid single digits for the quarter.
As we enter Q3, however, we are seeing improving trends and remain confident about the long term prospects of this brand.
Incent toddler in preschool category revenue was down 19% for the quarter, but achieved positive double digit Pos growth.
Revenue declines were due to our Imaginext toy story four line Thomason friends as well as our Fisher price friends business, where we continue to exit underperforming licenses.
These declines were partially offset by growth in baby gear and power wheels.
We are encouraged by the very positive Pos trends for the category, especially in North America shipping. However continue to trail Pos stores remain closed in international markets and retailers continue to more tightly manage their inventory levels.
Revenue for action figures building sets games and other our challenge of categories together declined 11%. However, Pos for the combined category was flat.
Our games category continued to perform exceptionally well and had its best second quarter ever and best first half ever.
POS was up significantly again, this quarter, making the fifth consecutive quarter of positive Pos growth.
Who knows saw the ninth consecutive quarter of year over year growth and as a non said we also saw strong demand and revenue for our Star Wars, the child plush products.
Our action figures category decline as we continue to lap toy story four post this movie launch here.
Our building sets category declined as Mega was impacted by reduced retail distribution.
We do expect to see better distribution in the us in the fall and look to leverage the launch of Halo This holiday season.
Turning to the recipe now.
Despite covert 19 disruptions and reduced revenues, we continue to see significant improvement in gross margin with our highest second quarter gross margin since 2016.
Second quarter reported gross margin was 43.8% of net sales of 410 basis point increase over the prior year.
Adjusted gross margin was 44% of net sales also a 410 basis point improvement versus the prior year. The increase in reported and adjusted gross margin was primarily driven by the incremental realized savings from our structural simplification in capital light cost savings programs and a decrease.
Since partially offset by the unfavorable impact of lower volumes.
We continue to make progress towards our goal of restoring profitability and we remain on track to return our gross margin to the high Fortys in the mid to long term.
Moving to advertising expenses for the quarter totaled $60 million or 8.2% of net sales. This compares to $85 million or 9.8% of net sales in the prior year.
As anticipated the year over year decrease in advertising was primarily driven by lower spend in the quarter and the shift to spend to the second half of the year.
We also proactively managed SGN a spend during a very challenging quarter.
Reported has seen a for the quarter was $307 million, a decrease of $2 million versus the prior year.
Adjusted as she and eight for the quarter was $288 million, a decrease of $2 million versus the prior year.
The decrease was primarily driven by the incremental benefit a structural simplification savings, partially offset by higher incentive compensation expense.
As we said on our first quarter call, we expect full year incentive compensation to be down versus the prior year.
The higher expense in the quarter is related to the timing of our incentive compensation accruals.
For the quarter reported operating loss was $46 million, a slight improvement compared to a loss of $51 million in the prior year.
Adjusted operating loss for the quarter was $26 million compared to a loss of $30 million in the prior year.
The improvement in reported an adjusted operating loss was driven by the incremental realized savings from cost savings programs, including lower depreciation.
Partially offset by lower gross sales.
Adjusted EBITDA was $31 million compared to $42 million in the prior year. The decrease was primarily due to lower sales, partially offset by realized savings from cost savings programs.
Moving to Texas in the second quarter, our income tax expense was $13 million. We continue to expect it going forward. Our overall effective tax rate may vary significantly from quarter to quarter due to the level and mix of income or losses in our foreign jurisdictions and the full valuation allowance.
On our U.S. deferred tax assets.
Turning to the balance sheet, we ended the quarter with a cash balance of $462 million, including $400 million of short term borrowings drawn down from our senior secured revolving credit facilities.
Our working capital decreased year over year as a result of reduction in accounts receivable and inventory more specifically net accounts receivable decreased 14% year over year, although our days sales outstanding slightly increased to 80 days up one day versus the prior year.
Owned inventory decreased $20 million versus the prior year due to the impact of temporary plant closures that occurred early in the quarter relating to covert 19.
Capital expenditures totaled $25 million for the quarter relatively flat compared to $24 million last year.
To reiterate were non said inspite of the positive outlook. We caution you to recognize the covert 19 uncertainty there still remains globally and the extent of retail closures, particularly in key international markets, which are likely to negatively impact revenue performance in the second half of the year on.
Year over year basis.
As a result, we will be balanced dinner production levels working with our retail partners on key drivers and aligning on fall advertising and promotional programs. In addition, we will prioritize production of evergreen products to ensure ongoing health of inventory into the new year.
Looking beyond revenues, we have demonstrated our capability to manage our cost and remain confident in our ability to do so going forward.
Gross margins have continued to improve despite the revenue declined and we expect material and labor cost inflation to be more modest than originally anticipated.
While there is still uncertainty in the balance of the year given our strong gross margin performance year to date. We currently see adjusted gross margins for the full year coming in around 150 to 250 basis points higher than full year 2018.
We expect our advertising expenses on a full year basis to end up within our historical range of 11% to 13% as a percentage unit sales.
We remain focused on cost management and are on track to achieved $90 million of adjusted as she may savings in 2020 compared to 2018.
Separately from these efforts, we continue to expect to realize $92 million of adjusted EBITDA savings. This year related to our recently concluded structural simplification program as was the previously announced $50 million of savings from our ongoing capital I program.
In regards to our liquidity at this time, we believe we have sufficient liquidity to effectively manage through this disruption and continue to execute our strategy.
As a matter of practice, we routinely evaluate our capital structure and access to the capital markets to Opportunistically improve our financial flexibility.
We have no debt maturities until 2023, and we continue to have access to our 1.6 billion dollar senior secured revolving credit facilities.
In closing the work we've done to reshape our operations over the past two years has improved our cost structure financial flexibility and liquidity.
We believe we remain well positioned to navigate the covert 19 disruption and continue executing our strategy.
On a personal note I would like to thank Inand the leadership team the finance organization and the greater Mattel team for their partnership and all that we've accomplished.
I am proud of the significant progress we've made to reshape our organization restore profitability and position the company for more sustainable growth.
I firmly believe these efforts will continue to benefit the company in the years become and I am confident in the continued success of Mattel under a non in Anthony's leadership.
With that I'll turn the call back over to the operator for today.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone again Thats Star one on your telephone to ask a question to withdraw your question press the pound key please standby, while we compile the couponing roster.
First question comes from a line of Michael Huang of Goldman Sachs. Your line is open.
Great. Thank you very much for the question.
I just had held to the first one is on.
The retail closures exiting the quarter you guys said, 4% a retail outlets are close exiting twoq you versus 30% exiting one Q curious frame for us the central revenue benefit just from that alone assuming all else equal as we head into the second quarter.
Hi, Michael let where what we said is that the.
Impact in the first quarter was about a third.
It was on a third of our revenue the 30% closure affected about a third of our revenue.
And by the end of the second quarter, the 4% of without those that were close represent 8% of our revenue.
Okay. Thank you and I was wondering if you could talk a little bit about the.
Really strong growth and are we had in North America, 43% year over year as really impressive.
You know what made Barbie.
A stand out relative to the rest of your portfolio and.
Is the Barbie retail inventory at low levels or is that more of a general comment for the entire portfolio. Thanks.
Hi, Michael It's Richard.
Look we're incredibly proud of the Barbie business and it really continues to resonate with consumers. It's a combination incredible product new innovation and cultural relevance as well as you know real active demand creation and finally, new content, that's really resonating.
With with our core consumer.
Inspur Barbie entering the second half.
Going to fall are incredibly strong on a global Pos was up more than 35% for the quarter with share gains per NPD.
Brand strength is continuing as the number one fashion doll property globally.
Also by the way the number one toy property and the entire U.S. industry for five consecutive weeks per NPD.
The strength that we had in for instance, the segment like fashion Easters today, which is the most inclusive and diverse fashion doll assortment.
Is incredibly culturally relevant and provides parents with an incredible place system that really talks about the day to day World that we live in and in addition, the new innovation segment that we launched count color reveal has been unbelievable, we've got more wave higher price point gift sets and our new scales coming.
Yeah.
Our state segment, it's been up significantly which is driven by large ticket items like the dream plane Dream camper and the iconic Dream House, which is already a top 10 item.
Year to date in the U.S.
The activity that we've got plan for the back half is strong incredible new product lots of great surprises to come from Barbie and so we're very confident in the back half year and to answer the inventory question lean good inventory, great you know sets where retailers are open.
And incredible traction online.
Great. Thank you Richard Thank you enough.
Thank you. Our next question comes on line.
The Korea of JP Morgan Your line is open.
Hi, Thanks for taking my question and congrats on a good quarter in a very difficult environment. The I also had two quick ones.
One as Youre guiding to 150 to 50 basis points of growth margin improvement, where they yet. So my question is what level of sales do you need to be able to achieve that.
Yes.
Yeah, we haven't really given the guidance on on that but we're confident because of the structural simplification takeout that we've done that will impact the back half of the year, along with what's going on with raw materials that gives us the confidence that we can deliver that margin over a variety of revenue outcomes.
Got it that's helpful and and then my second question Ed.
What's your content, then say if retailers have to shutter stores again.
And the back half way there is a second wave like is the impact is going to be as big as you saw in the second quarter.
Well we.
We did look a different scenarios.
Obviously continuously analyze the where the market evolves from here.
But as we said on the call based on the momentum were seeing right now.
The positive Pos trends and low retail inventories exiting the quarter.
We are planning for a strong demand for our products in expectation of an improved revenue performance in the second half compared to the first half, including the holiday season.
There is uncertainty.
There is uncertainty that remains in many parts of the world.
Especially as it relates to return to closure, particularly in some key international markets. So that is likely to negatively impact the second half relative to prior years, but given the strength of E. Commerce that remains a growth engine for us.
And the other initiatives that we're putting in place we feel confident heading into the second half.
Got it band that perhaps bank is done that.
Thank you. Our next question comes from Derrick Johnson of BMO capital markets. Your question. Please.
Alright. Thank you good afternoon, Hey, just sticking with this guidance topic on revenue. So second half should be better than first which was down 14, So I hope that happens but.
Are you eliminated the possibility of actually be up in the back half is that possibility they could be actually up.
Well, we're not providing any guidance.
But.
Job is to continue to execute well then with demonstrated.
In the second quarter our strength.
As an operation the resilience of our brands.
We were able to increase our gross.
Margin very meaningfully in spite of the decline.
And that work.
Continues across the board both on the top line and the bottom line.
There is uncertainty and we need to navigate the company in that environment, but given our performance we feel confident as I said heading into the second half.
Okay, and American American girl with direct to consumer up significantly.
Why do we still have stores and what's the plan with the physical locations for American girl.
Hey, Gary It we're really we're really pleased with the performance of American girl in the second quarter, and specifically given the circumstances related to coded and the impact.
That it had certainly on our retail fleet.
As we temporary closures and lack of progress that we wanted to make on our flagship stores.
We encourage the pivot to ecommerce, which has been incredibly robust the focus and investment that we've been putting behind our ecommerce and digital strategy is really starting to pay off.
With almost ecommerce up double digits in the second quarter more than doubling prior year.
On the retail front.
The retail environment, obviously remains uncertain.
But the evolution of our momentum is going to be channeled into our ecommerce platform and while we continue to evaluate our retail footprint last week, we announced three plans to close three doors, where leases were actually set to expire.
In early 2021 that was Kansas City, Atlanta and Denver.
Look these decisions are never easy closures are necessary part to optimize our store portfolio will continue to evaluate the leases as they come up but as I said, we're really encouraged with the ecommerce business and continue to.
Feel a lot of confidence in the back half on American girl.
Thank you Richard.
So emphasize the point on E Commerce as we said this has been really one of our star performers.
Key part of our strategy.
We saw a growing strongly in all regions.
Yes, more than our peers doubling in North America.
Now representing a third of our volume and seeing.
The momentum continues it will be something we will talk about more.
In the future.
Becoming an important part of our growth strategy.
Thank you cannot.
Okay.
Thank your next question comes from Steph Wissink of Jefferies. Your line is open.
Thank you good afternoon, everyone I'm going to take a second static gary's question into that it differently, but if you think about the second half versus the first half.
Is your expectation that the north American business stays relatively consistent to what you saw in Q2 now or do you expect the big improvements to come from acceleration.
Or betterment of some of the decline we've seen in some of the international markets.
Hi, Steph now we were not providing.
Any guidance for more detailed breakdown of how we think about the future.
But I would point to the strong Pos.
That bodes well for the company.
The fact that we're able to turn a decline in the first quarter two a high single digit growth across the entire portfolio.
This is a strong message so our product clearly resonates with consumers, we're able to find control what control relevance and continue to drive performance with very strong execution.
And we believe we're heading into the second half with momentum across the board both in terms of product and with local execution.
And as as stores continue to open that obviously would be a benefit and with all of that said back to the comment I made earlier, there's still uncertainty. So nothing is in the bags.
You can I ask one question Richard for you just can't digital marketing and your comments on E. Commerce intriguing how are you thinking about your marketing mix as we go into the back half of the year I think Joe you mentioned, maintaining advertising and 11% to 13% range for the player which would imply you catch up spend in the back half how should we think advantage.
But the traditional legacy advertising.
Yes that thanks for the question, but we've been working as you know over the last couple of years pretty significantly on balancing our demand creation strategies between.
Linear and digital and really feel quite comfortable at this point in our.
That as well as making pretty tremendous progress against it. We obviously have a shift in an acceleration towards online mobile shopping and a digitally savvy consumer.
E Commerce and entertainment.
Continue to blend with new shopping platforms emerging all the time, we've got a really nimble digital marketing organization that is reacting in real time with active demand creation models that are taking advantage of the talent that we have and the landscape that we're operating in.
And we are going to continue with our demand creation strategies that are working incredibly well right now and I anticipate continuation in the back half.
Thank you.
Thank you. Our next question from a line of our thing Cochran of Yes. Your line is open.
Hi, Thank you very much and first Anthony welcome aboard and and so that's really been a pleasure working with you.
I know you said your aren't going to provide guidance on revenue and sorry to go back to this but you are getting into peak production in just a couple of weeks here, what kind of volume assumptions baked into this production schedules for the back half and also could you talk a little bit about in picture internationally, what was the international Pos for the quarter I guess.
I'm, just trying to understand inventory situation, there and how that set up for Q3 getting that you didn't check much there.
So we're not.
Going to help you much on giving annual guidance for the second half.
But we did.
Enter the peak production season, we're balancing our production levels were working closely with our regional partners on key drivers and are aligning on the fall advertising and promotional program, which is something we always do.
We will also prioritize production of evergreen products to ensure inventory remains healthy.
In the new year.
And and entering the second half where the low retail inventories is or is a good is a good thing.
So.
That sorry, again I can help you much on guidance, but.
With everything I said, hopefully, we'll give you some reference to where you know how we think about the second half of the year.
Let Joe answer the.
Question on inventory.
In a retail inventories are sort of down in absolute dollars and down in weeks on hand.
So that obviously positions us well for the second half of the year.
And I'll just reiterate was an answer I mean, you know the one thing our commercial force does is really partner with our retailers in coming up with the plans for the back half a year so that as we after were.
Remit demand signal the manufacturing, it's done with a lot of thought.
Before we do that and we still have some time afford actually gets locked in so we still have some.
Time to see what's going to happen with the buyers in regards to your question in regards to Pos obviously.
The entire worldwide Pos for all brands were up high single digits, North America was up double digits International was down high single digits, but remember that the aggregate across the globe and some like you know.
EMEA was doing well as we were exiting the quarter versus where we started the quarter and you sort of saw that as you sort of went across the globe. So you need to take that into consideration.
Hi, Thanks, and just one more quick follow up if I may.
It seems like POS was up strong double digit for Fisher price. So wondering what drove double digit decline in sales there and why there's such a wide gap between command and what you're able to ship I guess I'm trying to understand why you couldn't ship kit demand was it all licensed franchises that you're trying to eliminate.
And our Fisher price revenues were down but it was in large part due to our Imaginext toy story four line, we did had positive double digit Pos for the quarter, which by the way we have not seen in many years.
We're incredibly encouraged by recent Pos which showed significant improvement.
Compared to the first quarter and look there's disruption obviously related to covert 19, but we really do believe and the brand for the long term remain confident in our plan and progress that we're seeing as we as we roll out frankly, our new product Rolling Ravi New innovation that you're aware of and saw strong year too.
In Lincoln schools, we're pretty confident that we will.
We will maintain our number one leadership position in the infant toddler preschool category and continue to be.
Incredibly valued partner by parents, which is more important than ever today.
Thank you okay.
Thank you. Our next question comes from Tim Conder of Wells Fargo Securities. Please go ahead.
Thank you and gentlemen, congrats on again executing a difficult quarter.
And Joe Thank you and Anthony welcome aboard Sir.
A couple of things.
Then hit in multiple ways. So we'll try to will continue on here, though so if we rewind 90 days ago or so not quite you said look Q1 was down 13% or so and we expect Q2 to be down even more significantly in here. We are kind of very comparable and now we've got strong Pos we've got trends improving.
Throughout Q2, lean channel inventories and I know Theres a lot of uncertainty in the back half of the years heavier weighted than the first half, but can you can you help us in any way you know the question was asked should back half of the sales be flat.
You're saying, it's going to be better than what was down in the first half, but just any color I think would be much appreciated.
And then I guess, one other way to an angle on that would be if theoretically all brick and mortar were shut down how much bandwidth could be offset with incremental E commerce, where I guess, what's the excess ecommerce bandwidth or is there any to handle that if we assume that in the back half a year.
Yeah. So.
Without downplaying.
The success and the achievement of what we've done in the second half relative to expectation, there's still a lot of uncertainty in the second half of the year.
You know there there is still a question mark on the extent of return closure, particularly in key international markets.
And there's just broad uncertainty with retailers as well.
Managing the inventory more tightly than than usual the important thing and as you know this is foundational is the strength of Pos we know that we also know that we're able to to make product because our supply chain is up and running. So these are two good.
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Pieces of the puzzle important pieces with a parcel and the third is just the uncertainty you know.
Which we can control.
So we are going into the second half confident we know we can execute well we know our brands resonate and we're not there is demand and without environment, we intend to do our best but given the uncertainty we can give you.
Specific specific items.
Okay no difficult questions.
And fair fair.
And on regarding the E com, how much ability would you be able to offset if we saw similar maybe shut down so the first half or or if all that were shut down any any color or or framing that you could do there is to E. Commerce is the ability to make up but any any closures on the brick and.
Waterside.
No it's really hard to.
To speculate.
But I can tell you that the market shifted in many ways accelerated maybe a few years in terms of.
The way online retail and E commerce is being consumed in and managed you said both from the supply side with retailers really stepping up.
Dancing, the infrastructure and catering for online retail as well as consumers much to have a much higher propensity to buy.
Shop online, including all the way to impulse purchase online so the markets has accelerated.
We too have shifted our plans and accelerating our efforts in online retail and E Commerce and.
One way or the other we expect remain a litter and be very proactive in capturing as much value as we can from from online sales as we have done now consistently for a few quarters and even more so in the.
In Q2 that just finished.
And lastly, quick clarification, if I may the 90 million year over year Ines DNA is that off of the total reported cdna drew I think you said adjusted so we should just look at that is the core SGN, excluding severance and Onetimes correct.
Yeah. The adjusted EPS you name it will be better by 90 million.
Thank you gentlemen.
Thank you our next question.
Comes from a line of Greg Badishkanian Wolfe Research your line is open.
Hey, guys, it's actually Fred Whiteman on Greg If we look at the gross margin guidance for the full year. So up 150 to 250 basis points when that implies a pretty wide range of performance in the back half looks like Italy can be down a little bit year over year.
Is the high end of that range versus low and really just a matter of sales volume could there be some cost saves that are shifting.
How should we think that tie into that.
Yes, I remember you have a couple of things going on the actions we've already taken in the first half year that will benefit us in second half of the year, you'll have the tougher compensate comparison, because if you think about structural simplification in 2019, it was well backend loaded versus this year.
And then we do have the uncertainty on the topline.
Okay, and then just shifting the Pos North American Pos up double digit this quarter, but I think when you guys reported back in late April you talked about us Pos was also up double digits. So.
On an apples to apples basis could that trend improve as he moved throughout the quarter.
The churn for could you repeat it.
This us Pls I think you guys talked about it being up double digit when you.
In late April when you reported.
Yes so.
North America.
Costs, all brands Pos was up double digits in the core.
And obviously a positive trend from where we were in the first quarter.
Right, but when you guys reported first quarter results I think you talked about April Pos in the U.S. was up double digits.
Double digit dealt in sort of make range did it improves you move throughout the quarter.
Yes.
Okay. Thanks.
Thank you. Our next question from Felicia Hendrix of Barclays. Your question. Please.
Hi, Thank you very much and so just in terms of.
Parcel in second half you talked about and a lot.
Just wondering if you could.
Maybe I'll address what segment, you're most concerned it out.
Thank you kind of more broadly across the across the board and then.
Richard just also wondering how we should think about Barbie in the second half you certainly had extraordinary growth Npls I mean, it in shipments rather in this quarter Npls and you kind of what.
Walk us through that.
We do expect kind of international to pick up in North America to normalize yes.
Just how should we think it out.
Superior growth that we're seeing now.
Yeah.
Let me, let me take the last part of that first Felicia, but.
The Barbie brand for the back half as I mentioned has incredibly strong product programs as well as brand activation.
Expansion of color reveal I mean, obviously for spring we've done incredibly well, we anticipate with new product, even higher price point gift sets and new scales that we're only going to gain more traction in that particular segment.
As I mentioned back in New York Toy Fair, which seems like a long time ago, we were expanding barbies family Chelsea pads and various other new ways, where that piece of our business is going to start to show up on a scoreboard, which you will see in offer the back half.
As well, we've got an incremental five tent pole of entertainment, our new property for US Count Princess Adventures, which is a new story that will air on Netflix in the fall with a robust program behind it that we'll continue to what we believe drive the momentum on Bharti last but not least.
You know you Barbie is an incredible conversational brand and culture, we've got shiro inspiring women and careers that we will be sharing in the coming months and so you can imagine the momentum on this brand will certainly continue and we're quite confident.
In the programming that being said international will also in our mind start to see the traction as well again, the impacted covert 19 on bricks and mortar in retail closures as we've seen as of recent Pos incredible momentum in the portfolio, particularly on Barbie.
And with an assumption that things will improve we maintain a great deal of confidence on the programming that we have coming.
Okay and just.
Sorry, the segment that might be most impacted in the second half given your questions comments.
You know, there's really not a lot of I'd say concerning segments. I think there is an obvious segment within the context of the impacted entertainment.
Clearly action figures has been a challenging category for us as mentioned almost half of the decline the company in the context for the quarter was due to action figures. We are obviously lapping toy story four post its movie launch.
And with the entertainment shipped with minions, we'd lost that piece of the business.
For the most part in 20, and we anticipate a real resurgence.
In 2021 on that particular category, there's really not a brand or segment concern per se as much as conviction around the products and programs that we have currently going into the back half and it's supported by the Pos and consumer sentiment that we see showing up on the Scoreboards right now.
And just to kind of now you mentioned, there's nine movies.
I believe there's a date matches the universe, but are there any dates for any of the rest of the pipeline.
No we haven't.
Announce any particular dates.
And.
We continue to do the work there is impact on the industry as a whole in terms of production schedule and release schedule, but we are continuing our creative work.
The the wish bone announcement in partnership with the Universal Pictures is one.
One project, we talked about the more that we're working on and continuing to advance the the project, where where they have in motion. So we're not losing momentum there or notwithstanding the impact on on physical production.
Thank you and did not see gel and welcome Anthony there folks that Barclays researchers opened very highly advanced.
Okay and the teacher.
Thank you. Our next question comes from David Banco.
Aaron Berg capital markets. Your line is open.
Great. Thanks, so much of the question.
I just wanted to reach back on our previous question a little bit about recent trends obviously the resurgence in the us sort of indicated some progress we had seen throughout the quarter I think a lot of the positive Pos trending would correlate with with the opening of retail stores.
But I'm curious if.
Sort of re closures in recent weeks and just general hesitant on the part of consumers has caused.
Any sort of backtracking Pos trends.
Forward.
Hi, Bill.
Sorry, David No no we haven't we haven't seen that if anything the.
Momentum is improving the trend is positive.
Again still uncertainty, but as as we sit here today, we're seeing an improved an improving trend.
Great and then okay.
Curious your conversations with very large retailers can you give us any sense for how they're thinking about the the holiday shopping season, and what are some of the puts and takes there considering as it relates to order levels. Thanks.
Not at point back to.
Two other said before more generally without speaking on their behalf.
A combination of.
Of strong demand in a strong Pos on one side.
And uncertainty and.
Wanting to manage inventory smartly and prudently on the other side.
For as long as there is demand and strong Pos.
We are on the goods side of the equation.
Got it thank you.
Thank you. This concludes todays culinary session I would now like to turn the call back over to Mr., Craig for closing remarks.
Hi, there.
As we know.
2020 is a year that is being shaped by exogenous and macroeconomic factors.
The second quarter results reflect the challenges that we were facing but also demonstrate our execution capabilities and the resilience of our brands.
Given our performance is strong Pos trends and the momentum we had exiting the quarter. We are confident in our ability to navigate through the balance of the year. We believe we have the assets the resources and the capabilities the position us well to execute our strategy.
Our goals remain the same we are committed to our strategic roadmap to restore profitability and regain topline growth in a short to midterm and to capture the full value of our IP in the mid to long term.
We are focused on transforming mattel into an IP driven high performing play company and creating long term shareholder value.
I am grateful for the team teams continuing hard work and dedication, especially during these challenging times, we hope that you and your families are healthy and safe and I'll now turn the call back to Dave to provide the replay details. Thank you.
Thank you in on thank you everyone for joining the call today.
The replay of this call will be available via webcast and audio beginning that apthirty PM eastern time today.
The webcast link can be found on our investor page well for an audio replay. Please dial 4045373 406.
Passcode is three 190 108, thank you for participating in today's call.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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