Q4 2020 Mattel Inc Earnings Call
And then.
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And.
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Ladies and gentlemen, thank you for standing by and welcome to the Mattel, Inc. Fourth quarter, 'twenty and 'twenty earnings Conference call.
At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session at.
I have two question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and.
It is now my pleasure to introduce Vice President of Investor Relations Day Boy and pitch.
Thank you operator, and good afternoon, everyone.
Joining me today are you non cries, Mattel's, chairman and Chief Executive Officer.
Richard Dickson, Mattel's, President and Chief operating Officer, and Anthony Disilvestro, Mattel's Chief Financial Officer.
As you know this afternoon, we reported mattel's 'twenty and 'twenty full year and fourth quarter financial results.
We will begin today's call with the non and Anthony providing commentary on our results.
For which we will provide some time for a non Richard and 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 adjusted gross profit and adjusted gross margin.
Adjusted other selling and administrative expenses.
Adjusted operating income and loss and adjusted operating margin.
Adjusted earnings and loss per share earned.
Earnings before interest taxes, depreciation and amortization or EBITDA and.
Adjusted EBITDA free.
Free cash flow leverage ratio and constant currency.
Please note going forward references to revenues sales topline and other similar terms will be only and net sales terms.
We have also introduced the gross billings metric, which is directly comparable to the term gross sales that we used in prior quarters.
This change has been made to clearly distinguish our revenue per reported for GAAP purposes, and the gross billings metric.
Gross billings represent amounts invoiced to customers.
Does not include the impact of sales adjustments, such as trade discounts and other allowances.
Mattel presents changes and gross billings as a metric for comparing its aggregate categorical brands and geographic results to highlight significant trends and mattel's business.
Changes in gross billings are discussed because while Mattel records the details of such sales adjustments and its financial accounting systems at the time of sale and such.
Such sales adjustments are generally not associated with categories brands or individual products.
Please also note that we refer to gross billings as billings and our presentation and that gross billings figures referenced on this call will be stated in constant currency unless stated otherwise.
In addition, please note that our accompanying slide presentation can be viewed and sync with today's call. When you access it through the investors section of our corporate website corporate Mattel Dot com.
The information required by regulation G regarding non-GAAP financial measures is included in our earnings release and slide presentation.
And both documents are also available in the investors section of our corporate website.
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're subject to a number of significant risks and uncertainties that could cause our actual results to differ from those projected and the forward looking statements.
Including risks and uncertainties associated with the COVID-19 pandemic.
We describe some of these uncertainties and the risk factors section of.
Our 2019 annual report on form 10-K.
Our Q3 2020 quarterly report on form 10-Q.
Our earnings release, and the presentation accompanying this call and.
And other filings, we make with the SEC from time to time as well as and 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 mattel's fourth quarter and full year 2020 earnings call I Hope that you and your families are staying healthy and safe.
This was an exceptional quarter driven by strong consumer demand capping and extraordinary year for Mattel.
In the midst of a pandemic and very challenging market conditions, our results exceeded expectations with another major upswing and topline and a significant increase in profitability as we gained global market share and continued to transform Mattel into an IP driven high performing for the.
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The fourth quarter and full year demonstrated the resilience of the toy industry and the priority the parent's place on quality toys trusted brands and purposeful play.
At Mattel, we have been particularly proud to see children and families choosing our products again and again.
Here are some key highlights for the fourth quarter compared to prior year.
Net sales grew 10% as reported and in constant currency, the highest fourth quarter growth rate and 15 years.
Adjusted gross margin improved significantly and reached 51, 4%.
<unk> consecutive quarter of improvement on a year over year basis.
Adjusted operating income increased 88% and adjusted EBITDA increased 53%.
In spite of a difficult first half 2020 ended up being another milestone year for the company as we further advanced our transformation strategy.
Here are some key highlights for the full year compares from 2019.
Net sales grew by 2% as reported and by 3% and constant currency.
This was the second consecutive year of growth and constant currency.
Adjusted gross margin was 49, 1% and improvement of 420 basis points.
Adjusted operating income was $448 million the highest in for years, increasing more than two five times over last year.
Adjusted EBITDA was $719 million increasing by 59%.
Free cash flow was $167 million and improvement of $102 million.
And we gained global market share for the full year per NPD.
Our momentum was driven by the quality and breadth of our product offering enduring strength of our brands.
Highly efficient supply chain and world class commercial capabilities, and very effective demand creation and close collaboration with our retail partners.
The continuous improvement and our performance.
It's us and a strong position from which we believe we can accelerate our growth.
Looking at the fourth quarter results and constant currency and more detail.
For the second quarter and a row, we achieved double digit growth outpaced the industry and gained market share on a global basis.
We achieved revenue growth in each of our for regions with particularly strong performance in North America and EMEA.
Gross billings increased and six of the seven categories.
With particularly strong gains in dolls and vehicles notable growth and infant toddler and preschool and we also had a strong positive quarter for American girl.
Total company Pos momentum remained strong throughout the quarter, increasing double digits and continuing to outpace biddings.
We also delivered continued strong growth and online retail and E commerce as we accelerate our business and these channels and our supply chain performed very well and fulfilling more of the extraordinary growth and consumer demand than expected.
Okay.
Looking at the fourth quarter gross billings and constant currency by category.
We delivered strong performance across the portfolio with growth across all categories, where we are a global leader dolls vehicles, and infant and toddler and preschool and and three of the for categories, where we are a challenger games building sets and other.
Yeah.
Dogs category gross billings grew by 13% driven by continued strength in Barbie and growth in American girl.
POS remains strong more than doubling our growth and billings.
Bob gross billings were up 18% as momentum and this power brands continued to be very strong.
Barbie Pos was up more than 30% drew.
And by product innovation, cultural relevance and very effective demand creation.
Per NPD.
And for both the fourth quarter and full year in 2020 Barbie was the number one overall toy property globally.
And the Barbie Dream House was the number one and toy in the U S for both the fourth quarter and the full year.
It is exciting to see Barbie go from strength to strength as this incredible flagship franchise continues to inspire consumers around the world.
American Girl gross billings were up 9%.
This was the first quarter of year over year growth and for years.
This growth was achieved in spite of COVID-19, retail related disruptions, including a large drop in overall tourist traffic to our flagship stores and the permanent closure for retail stores.
American girl direct to consumer business continued to strengthen and more than compensated for the reduction in the retail business with growth and new customer Activations.
And all the value and conversion rates.
For the quarter direct to consumer represented more than 75% of gross billings.
These results are a significant achievement, especially in a quarter that represents more than 50% of the brands full year billings, which speaks to the successful progress of the turnaround of this iconic franchise as it continues to gain momentum.
Vehicles category gross billings also increased up 12% for the quarter drill.
Driven by the strong performance of hot wheels and Matchbox.
And the category remained strong.
Up double digits and aligned with billings.
Hot wheels, gross billings were up 14% with broad based growth across all product segments.
Per NPD Hot wheels remained the number one vehicles property globally in.
And both the fourth quarter and the full year.
And the hot wheels single assortment was the number one toy sold globally and the full year.
This was the third consecutive year.
Record gross billings for these power brands.
Infant toddler and preschool category gross billings were up 7% driven by an increase in Fisher price and Thomas and friends.
Fisher price core was up 11%.
Driven by growth and its infant little people and imagine X product segments.
Fisher price core Pos was flat this quarter with positive Pos in the infant and baby gear business.
This was offset by a tough license entertainment and Pos comparison, and our preschool business.
We remain on track with our turnaround strategy for the smile brands and confident and its long term growth prospects.
Fisher price was again, the number one infant toddler and preschool manufacturer in the U S and globally per NPD.
Gross billings for action figures building sets games and either our challenger categories grew 9% in the quarter.
Driven by games plush and building sites.
Games achieved its eighth consecutive quarter of year over year growth.
<unk> continued to perform exceptionally well remaining the number one item based on units in the games and puzzles and Super category globally in 2020 per NPD.
Games, Pos remained strong and was up double digits in the quarter.
Cash category, which was a white space for us only a year ago continued to show strength driven by Star Wars.
Our 11 inch Star Wars, the child plush was the number one selling item in the cash Super category in the U S in 2020 per NPD.
We are pleased to expand on this new success and plush with the recently announced line of Marvel Plush items coming later this year.
Building sets were up double digits in the quarter, a significant improvement compared to the first nine months of the year driven by strong Pos and expanded distribution of Mega and particularly in North America and EMEA.
As expected action figures declined due to the toy story for year over year comparison, although it remains a strong evergreen brands.
The decline was partially offset by the masters of the universe collectors toy line, which bodes well for the franchises relaunched this year.
We also continued to see positive results with some of our key evergreen licenses, particularly Minecraft Jurassic World and minions.
Looking at gross billings by region and constant currency for the quarter.
We achieved growth in each of our for regions for the second consecutive quarter. Despite COVID-19 disruption and local restrictions that impacted some locations.
By the end of the fourth quarter about 3% of all retail outlets that sell our products representing approximately 5% of our revenue base were closed.
Strong Pos performance for Mattel resulted in lower retail inventories year over year as we exited the quarter.
Looking at regional gross billings and constant currency and Pos for the quarter.
North America was up 13%.
Driven by broad based strength across almost all categories.
The U S continued to be strong and was up slightly more than gross billings.
Mattel continued to be the number one manufacturer in the U S for the 27th consecutive year per NPD.
And gained market share in the fourth quarter and the full year.
Materials year over year growth in the fourth quarter was one three times faster than the total U S industries growth rates.
EMEA was up 12%.
Driven by strong performance across all major markets and continued growth and E commerce.
POS was up double digits and aligned with gross billings.
Mattel achieved year over year growth and gross billings in seven out of the last eight quarters.
According to NPD Mattel.
And Mattel gained share in EMEA in 2020 and improved it shrank from number three in 2019 to number two in 2020.
Materials year over year growth was five five times faster than the toy industry is growth rate in the region.
Asia Pacific was up 8% driven by growth in Australia.
POS was up low single digits in the quarter and improving trend. Despite several markets experiencing COVID-19 restrictions and slow recoveries.
Latin America was up 3% driven by and improving retail market with store openings and increased foot traffic.
Mattel gained share in the quarter and the full year and expanded its number one and leadership position in the region per NPD.
E Commerce maintained its momentum.
And grew by more than 40% versus last year, representing about 36% of our global Pos in the quarter.
Per NPD Mattel was the number one manufacturer in the U S online for the fourth quarter and grew online share in the U S and the fourth quarter and the full year.
We have clearly made significant progress in a short to midterm strategy to restore profitability and regain top line growth.
Restoring profitability has been a key pillar in our short to midterm strategy.
Looking at key profitability metrics since 2018.
Adjusted gross margin has improved for 10 consecutive quarters year over year.
And over 1100 basis points in the three year period.
Adjusted EBITDA has improved by almost $600 million from $126 million in 2017 from.
From $719 million in 2020 or more than five five times.
We reshaped our operations and exited the year with over $1 billion in savings.
Primarily through our structural simplification and capitalized cost savings programs.
Both key drivers and helping us make such significant progress on restoring profitability.
This process yielded greater visibility and insights into our operations and we have identified additional areas, where we can further improve operations and drive greater productivity to accelerate growth and at the same time continuing to reduce our cost base.
Today, we are announcing and new multiyear program called optimizing for growth.
Which will integrate the capital light program.
The total benefit is expected to bring additional cost savings of $250 million by 2023.
And Tony will share more detail on this in a moment.
We believe the company is on solid ground to continue growing profitability in the coming years.
Our goal is to achieve a mid teen adjusted operating income margin by 2023.
Having gone from a negative for 2% in 2017 to a positive nine 8% in 2020, we.
We believe we are on the right track.
As it relates to 2021, we expect our adjusted EBITDA to be between $775 million to $800 million.
Regaining top line growth has also been a key pillar of our strategy and we are very encouraged to have achieved the second year in a row of topline growth and constant currency after five years of consecutive decline.
We are mindful of the continuing and COVID-19 impact market volatility and other macroeconomic risks and uncertainties.
That said, we are entering the year with total company Pos momentum continuing to be strong and non retail inventories and therefore expect to accelerate our topline growth in 2021 and achieve a mid single digit percentage increase in net sales and <unk>.
Constant currency.
Looking beyond 2021.
We are confident and the continued momentum of our power brands. The incredible pipeline of catalog IP and the strength of our entertainment partnerships, all fueled by innovation and cultural relevance.
With that.
Goal is to continue increasing market share and also grow our net sales by mid single digit percentages and constant currency in 2022 and 2023.
As it relates to our mid to long term strategy, we continued to make progress towards capturing the full value of our IP.
We recently made exciting announcements with Mattel films, and Mattel television, including and own a live action film in development with Grammy Award nominated rapper Lil Yati, and Uno Gameshow and development with propagate.
A whack a mole game show in development with Fremantle based on the classic arcade game and the Thomas and friends. All engines go series to expand distribution with cartoon network and Netflix both of which will air the show starting this fall and international distribution partners to be announce.
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Okay.
In closing.
This was a banner quarter for the company with our best performance in years.
2020 was another milestone for Mattel.
A year and which we grew both the topline and Bottomline gained global market share and continued to make significant progress and our transformation strategy.
I could not be more proud of the work of the entire Mattel global team and the innovation collaboration and execution that was demonstrated in and extremely tumultuous year.
The momentum across the enterprise positions us well to accelerate our growth and make continued progress towards our goal to transform Mattel into an IP driven high performing toy company.
And we remain committed to continued progress of our strategy and the creation of long term shareholder value.
And now Anthony will cover the financials in more detail.
Anthony over to you.
Thanks, and on we had another outstanding quarter with results exceeding expectations.
Net sales increased double digits with broad based gains across the portfolio and we are pleased with the continued improvement in gross margin.
Our structural simplification and capital light cost savings programs delivered $43 million and savings in the quarter and $193 million for the full year.
And as he non mentioned we are announcing the optimizing for growth program to further improve operations and drive greater productivity and accelerate growth and at the same time continue to reduce our cost base.
This is expected to deliver in aggregate and additional $250 million of savings by 2023.
With a strong finish to the year and momentum into 2021, we are providing guidance for the new year, reflecting continued growth and both our top and bottom line.
I will now review our detailed results.
And the fourth quarter, we generated net sales of $1 $626 million and increase of 10% versus the prior year.
Adjusted gross margin increased by 250 basis points to 51, 4% driven primarily by cost savings.
On an adjusted basis, we generated $205 million of operating income a non.
And $96 million increase year over year, driven by higher sales gross margin gains and lower SG&A.
EPS on an adjusted basis was <unk> 40, and the quarter, increasing 264% from 2019.
And adjusted EBITDA grew by 53% to $284 million.
As I said, just an outstanding quarter.
Commenting briefly on the full year performance net sales increased by 2% to 4 billion and 584 million for <unk>.
Second half performance more than offsetting declines in the first half.
Excluding the negative impact of $54 million for currency translation.
Net sales and constant currency increased 3%.
We are very pleased with growth margin performance adjusted gross margin driven primarily by cost savings increased by 420 basis points to 49, 1%.
Third consecutive year of significant improvement.
Adjusted operating income increased 187% and $448 million, reflecting and adjusted Oi margin in 2020 of nine 8%.
Adjusted EPS is now positive, reaching 54, and 2020 compared to a loss of 30 and the prior year.
And lastly, adjusted EBITDA increased by $266 million for <unk>.
$719 million well ahead of expectations.
I'll continue my discussion of the fourth quarter with net sales by reporting segment.
North America increased by 13% versus prior year as reported and in constant currency driven by growth and both the U S and Canada.
International increased by 7% versus prior year, as reported and 8% and constant currency.
Driven by strong growth in EMEA, and Asia Pacific as well as growth and Latin America, where we extended our market leading position.
We are very pleased to see growth and American girl as net sales increased by 12% on the strength of the direct to consumer business as we continue to execute the turnaround plan.
As the non mentioned across our portfolio. Our continued high growth of E commerce with a key contributor to our success, representing 36% of total company Pos in the quarter.
In aggregate net sales increased by 10%, both as reported and in constant currency as currency translation had minimal impact on sales and the quarter.
We achieved continued improvement in gross margin compared to 2019 for fourth quarter adjusted gross margin increased by 250 basis points to 51, 4%.
Together, our cost savings programs contributed 220 basis points to the year over year increase.
For the quarter capital light and the recently completed structural simplification program delivered savings of $24 million and $11 million respectively.
Gross margin also benefited by 120 basis points from reduced royalties, reflecting lower sales of licensed products.
Mix and other contributed 50 basis points, driven by favorable category mix, reflecting the above average growth of golf and games.
Foreign exchange was a 90 basis point headwind to gross margin as input costs were negatively impacted mainly by weaker currency rates, including the Mexican peso and Brazilian real.
Lastly, product cost inflation had a negative impact of 40 basis points and the quarter driven by higher rates and logistics and plant labor, bringing in a fourth quarter adjusted gross margin to 51, 4%.
Moving down to P&L.
Advertising expenses for the quarter totaled $207 million to $8 million and increase of 22% compared to 2019.
As expected the increase and advertising, reflecting timing shifts for the fourth quarter, which we previously discussed.
Adjusted SG&A expenses declined by 8% to $353 million driven by lower incentive compensation due to timing and the benefits of the structural simplification program and additional cost savings actions taken in 2020.
We had another quarter of very strong bottom line performance.
Adjusted operating income grew from $109 million to $205 million and increase of $96 million.
The increase was driven by higher sales gross margin expansion and lower SG&A.
Partly offset by increased advertising.
Reflecting the gains and operating income our adjusted EBITDA also increased significantly up $99 million for $284 million.
As I've stated before generating free cash flow is a key focus area for us.
Cash from operations increased from $181 million and 2019 to two one and $89 million and 2020 and increase of $108 million.
The primary driver of the increase was the gain and the net income line as we went from a loss of 214 million in 2019 like positive net income of $127 million and 2020.
A positive swing of $341 million.
This was partly offset by the use of $151 million and working capital and other and 2020.
The increase in working capital reflects a sales driven increase in accounts receivable.
Which will bode well for cash generation heading into 2021.
Our inventory levels are also higher as we prepare for and anticipated strong start to 2021.
Moving down to free cash flow with capital expenditures similar year on year free cash flow more than doubled increasing by $102 million from $65 million and 2000 $19 million to $167 million and 2020.
Turning to the balance sheet.
We ended the fourth quarter with a cash balance of $762 million compared to $630 million a year ago with essentially no short term borrowings.
The $132 million increase and cash is primarily driven by our 2020 positive free cash flow, which I just discussed.
In line with our double digit increase and fourth quarter sales accounts receivable balance increased by $98 million to $1 billion and $34 million.
We continue to effectively manage accounts receivable as our year end 2020 day sales outstanding is consistent with last year at 57 day.
As I mentioned, our inventories are slightly higher reflecting the positive momentum entering the first quarter.
And our debt to adjusted EBITDA ratio improved declining from six four times in 2019 to for 0.0 times at the end of 2020.
As he non discussed we have made significant progress and restoring profitability.
This chart illustrates our progress on three important metrics.
Since 2017, adjusted operating income had steadily improved from a negative $203 million and 2017.
Turning positive in 2019 and advancing to $448 million in 2020.
Our cost savings over the last three years, which exceeded $1 billion and savings was the primary driver of this performance.
Gains and operating income are reflected in the adjusted operating income margin, which finished 2020 at nine 8%.
We've made significant progress we believe there is further opportunity to improve our margin and I will discuss our plans and a moment.
Lastly on adjusted EPS, a critical metric that includes interest and taxes, we improved from a loss of $1 20, and 2017 to a positive 54 per share and 2020.
I want to share with you two more important metrics for <unk>.
First is free cash flow, which has steadily improved over the last three years.
From negative $325 million and 2017 free.
Free cash flow returned to positive $65 million, and 2019 and increased to $167 million and 2020.
Going forward, we will be focused on converting and increasing percentage of EBITDA into free cash flow and as previously stated we intend to utilize excess free cash flow to reduce debt and the near term.
Driven primarily by the growth and adjusted EBITDA, our leverage ratio of debt to adjusted EBITDA has improved significantly.
From a high of 25 times in 2017, we ended 2020 with a leverage ratio of just four times.
Given our expectations for future EBITDA growth and the utilization of excess free cash flow to reduce debt. We expect our leverage ratio to continue to improve as we work our way back towards an investment grade rating.
The new optimizing for growth program is designed to further improve operations and drive greater productivity to accelerate growth and at the same time continue to reduce our cost base.
This new program will integrate our capital light program going forward with several new opportunities that leverage our scale and streamline key processes.
Under the program, we expect to achieve an additional $250 million and savings by 2023 with the first $75 million benefiting 2021.
In terms of the P&L, we anticipate approximately 50% of the expected savings to benefit cost of goods sold 40% to benefit SG&A and the remaining 10% to impact advertising and promotion.
We also expect that the majority of the savings will contribute to operating margin expansion.
Currently we estimate the cash cost and investment to implement the program to begin the range of $100 million to $125 million, which we will update as we advance the program.
As it relates to capital light. This past January we completed the divestiture of Mattel Arts, and crafts and stationary business, including the associated manufacturing plant.
The business was included in the Mega acquisition and 2014.
And this divestiture allows us to exit and non core business and further reduce our plant footprint as we advance our capital light strategy.
With a strong second half and positive momentum, we are providing 2021 guidance, reflecting our expectation for continued growth.
Our guidance is subject COVID-19 impact market volatility and other macroeconomic risks and uncertainties.
On the top line, we expect net sales and constant currency to grow by a mid single digit percentage, primarily driven by dolls and vehicles and action figures categories as well as improving performance and the infant toddler and preschool and building Thats category.
In terms of phasing, we are comping, an unprecedented year, and which we saw a double digit decline and the first half.
And by double digit growth and the second half.
With that we expect strong sales gains and the first half of 2021 and will face challenging comparisons and the second half.
Following a three year period, and which adjusted gross margin expanded by 11 100 basis points. We expect adjusted gross margin to decline by 50 to 100 basis points and 2021 to a range of 48, 1% to 48, 6%.
As we are facing a high level of inflation and cost of goods sold.
In aggregate, we expect cost inflation to have a negative impact on gross margin of approximately 200 basis points.
We expect continued growth of adjusted EBITDA, which is forecasted to be and the range of $775 million to 800 million as our business continues its upward trajectory and improved performance.
This assumes a slight decrease and depreciation and amortization as we have reduced our capital expenditures relative to historical levels.
With respect to capital expenditures and 2021, we expect spending between $125 million and $150 million, which includes investments related to the optimizing for growth program.
As a non mentioned looking ahead. Our goal is to continue growing net sales and constant currency by mid single digit percentages and 2022 and 2023.
And to achieve and adjusted operating income margin and the mid teens by 2023.
And closing Mattel delivered another outstanding quarter, and we are very pleased with our performance for the full year.
In spite of the challenges in 2020, we continued to make meaningful progress towards our strategy to restore profitability and regain top line growth.
We believe we are well positioned to maintain this momentum.
I will now hand, it over to the operator for the Q&A.
Thank you.
As a reminder to ask a question and you will need to press star one on your telephone.
To withdraw your question press the pound key please standby, while we compile the Q&A roster.
Your first question comes from the lineup and Zacharias with JP Morgan.
Hi, Thank you so much for taking my questions and congrats on excellent results.
And I just wanted to my first question is around.
Mid teens operating margin guide.
And by trying to Chinese for me can you help us understand the breakdown between gross margin and SG&A contributions to get to that level.
Yes, I'll take that hi, Tim and for Anthony.
As we said we have a goal here to expand our adjusted operating income margin to the mid teens by two.
2023, and a key driver of that is going to be are optimizing for growth program and as we've disclosed that program, we've given an allocation and how that will impact the P&L, so about 50% cost, 40% SG&A and the remaining 10% coming through the advertising and promotion line.
We're not giving specifics around gross margin, but it is our expectation that the combination of pricing and optimizing for growth will more than exceed the impact of cost inflation over time, and then expanding gross margin will contribute to that Oi growth.
Got it. Thank you so much and my follow up question is around the mid single digit.
And net sales growth expectation and some furniture IC and.
And then could you help us understand what's driving that meaning which brands and do you expect international.
Growth to sort of be above that.
And basically what's supporting that mid single digit.
Sales growth expectation.
Hi, <unk>.
So we were.
We provided our growth this is different from the guidance, we gave for 'twenty one but.
Directionally when we look at the quality and breadth of our product.
And the enduring strength of our brands the efficient supply chain that we now have and call and competitive advantage.
The World class commercial capabilities, and how we work and close collaboration with our retail partners.
And looking at the momentum we have we feel confident to share with you our growth.
And believe we will.
Make it.
Understood. One last quick one from me from a modeling perspective, how should we think about the tax rate.
For 'twenty and 'twenty one.
Yeah, So Jamie we're not providing.
Specific guidance around the tax line, but I don't think it would be meaningfully different than where we've been and the recent past.
Got it. Thank you so much and best of luck.
Thank you.
Thank you and our.
Next question comes from the line of Arpin Kocharyan with UBS.
Hi, Thank you very much and thanks for taking my question I was wondering if you could talk about retail inventory situation globally.
And the bigger question is as you look at the rest of the year outside of current Pos trends, which one day comping kind of pandemic related first what is your outlook on whether the industry kimco, and where Mattel fits and Tim just taking share I guess I'm trying to understand better why the mid single.
Visit growth.
Number for you for shipment given so and we think depleted inventories and strong film slate and.
And the easiest shipment comps and the first half.
And again, and then I had a quick follow up.
Yeah. So let me comment on the retailer inventory situation and as you may recall, we did start 2020 with retail inventories slightly elevated and then as we progress through 2020, we achieved double digit growth.
Outpaced our 3% gross billings growth and constant currency and therefore, we ended 2020 with retail inventories down mid single digit percentages in terms of dollars and when you look at and incorporate the increased Pos which has continued into 2021 our weeks of.
Supply are actually down double digits.
And looking ahead into 'twenty, one and that should bode well for our sales outlook as we enter 2021.
That's very helpful and my question on kind of what's your view on industry for all perhaps for a question for you John do you actually think and this we can overcome this tough comps from coal and other quick hall.
Yes so.
And Theres no question that the Covid Lockdown drove strong consumer demand for toys across the board.
And I would spend more and more money in 2020, and quantity product and trusted brands and consumers adapted to the new norm with particularly strong performance and certain search categories, including outdoors games and puzzles and building sets.
<unk> and 'twenty ended up seeing extraordinary growth for the industry.
And again proved its resilience and highlighted the importance of play and continue to be a strategic category for retailers and the day.
Demand driven by Covid, However, it's difficult to quantify as the industry was projected to grow even before the pandemic.
Said.
When we look at our overall performance.
And our market share gains and significant to the increase in profitability. That's been driven by the hard work of the organization and many of the actions we took before the pandemic to reshape and simplify our operations and as part of our turnaround strategy and now contributing to our strong performance overall and so we then just ride the wave we are.
And as the industry and we gain share and a global basis in the third quarter and the fourth quarter and the full year now we believe that the categories, where we are a global leader dogs vehicles, and infant and toddler and preschool will continue to perform well and we expect to grow and increase our overall and the market share.
Without and we expect that the search categories that benefited from the pandemic, mostly would be more challenged outdoors outdoor games and puzzles and building sites beyond 'twenty one.
We believe strongly and the long term growth prospects of the industry.
We're seeing the strong fundamentals and we believe we are well positioned to capture this growth.
Thank you that's very helpful and I have one.
One more quick clarification question.
What does the cadence of that cash spend look like.
To get to that cost savings for 250.
Particularly as it relates to this year it seems like 75 negative that cost savings and hitting the P&L. This year, but what is the cash expense offsets and I understand that's cash expense the P&L can be different.
Is it more 2021 skewed does that mean run rate EBITDA coming out of the year would be higher than 800, and there again, if I were to think about that spend that won't be really recurring in forward years.
Yes, if you're referring to the cash implementation costs are about Bob.
100 to 125, I think we're not going to get into too much detail, but I think it's reasonable to assume kind of pro rata over the three year period.
Okay.
Thank you that's very helpful and great quarter.
Thank you operator.
Thank you and our next question comes from the line of Eric Handler with MK and partners.
Good evening. Thank you for the question.
If you get to your planned $735 million to $800 million.
Adjusted EBIT.
This year.
What kind of free cash flow conversion do you think you could achieve all for that.
So Eric Anthony so as.
As we said in our remarks, our focus goes.
Forward is on increasing the conversion of EBITDA to free cash flow and we think we're well positioned to do that obviously, we will get the growth and EBITDA up to the 775 to 800 range improving free cash flow.
We are well positioned with respect to working capital. So we saw a $150 million increase in 2020. Most of that was sales driven accounts receivable, which is really kind of timing so that bodes well for improving the conversion in 2021. So we're confident we will be.
Able to improve our free cash flow generation in 2021 over 2020.
And as we've talked about.
Our expectation is to you.
Utilize our excess free cash flow to reduce debt and the near term and continue to improve our leverage ratio as I said, we're down to four times debt to adjusted EBITDA, and we would expect that to improve going forward as well.
And so.
And so we want to achieve investment grade.
Our credit rating.
Target leverage.
<unk> achieved.
Get there and once you get there.
Dividends and buybacks I think is back on the table.
Yes, I think it's premature to talk about the next evolution of capital allocation and as I said, our focus on the short term is improving our leverage ratio getting ourselves and working our way back towards an investment grade that means a debt to EBITDA and that comment that two two and a half range and that's what we're focused on.
And.
Thank you.
And sorry.
Thank you and our next question comes from the line of Mike and G with Goldman Sachs.
Hey, Thanks, so much for the time and for the question.
And just have two for.
First could you just talk about some of the key.
<unk> toy property licenses you have for two.
<unk> 2021, I know there are some pics.
Pixar movies, and obviously minions and I think is also supposed to come and 21.
And then the second question.
Just to comment as it relates to top line growth for 'twenty, one the strong first half tough.
Tough comps and the second half.
We see growth and second half, albeit more muted or credit second half actually be now thank you very much.
Yeah, Hi, Michael.
The current slate that we have includes great properties, including spirit minions fast and furious top gun Maverick as well as Halo Minecraft and the Tokyo Olympics.
Now, we all know that the entertainment slate remains fluid and there is still movement around the timing of releases and and distribution models.
But from our perspective, we are not as dependent as other companies on these properties because the vast majority of our business is driven by our own brands and our own intellectual properties and we do have very strong relationships with all major entertainment companies and will look to continue to strengthen our position as a possible for <unk>.
Choice and.
And to the extent there is a shift and the release calendar, we will still benefit from those relations when they when they do come out that said, we're not dependent on that and we did factor.
Our outlook on these properties and the EBITDA guidance that we.
That we provided.
And you look at our results for the fourth quarter and the full year.
Our best performance in years and it shows you the strength and quality of the product that we had with very little entertainment properties and 2020.
And just to comment on the phasing as we said you know we're wrapping double digit decline followed by double digit growth. So we do expect to see strong sales gains and the first half more challenging content and the second half and most importantly, achieving our guidance of mid single digit.
Growth for the full year.
Thanks, John Thanks, Anthony.
Thank you.
Thank you and our next question comes from the line of Steph Wissink with Jefferies.
Thank you good evening, everyone and we have.
Couple of tactical questions. The first is on your comments Anthony about gross margin and in placed and that you're embedding in 2021.
Curious with the momentum and your business and why you Wouldnt have the power to take some price so maybe talk a little bit about.
How you're feeling about your brands and the pricing within the competitive set and if you feel like you do have some potential opportunity to take some price to offset some of that and placement.
Yes, let me first just kind of reiterate the comment on the inflation. It is in both materials, driven by resin and and logistics driven by Ocean.
Great and it came on pretty quickly.
And in terms of our brands, we feel great about our brands.
We're not going to talk about specific pricing actions, but our belief is that over time that combination of pricing and cost reductions coming out of our optimizing for growth program were more than offset cost inflation and the long term and contribute to margin expansion.
Okay. That's helpful and then optimizing for growth.
$720 million and exit EBITDA rate for 2020, the guidance at 775 to 800.
And would include that $75 million of savings, maybe help us think through the bridge and what's happening to the underlying business ex the savings.
And flattish or up only modestly on the mid single digit rate of growth.
Yes, So let me comment on that I think the way to think about our EBITDA guidance to $7 75 to 800, which is growth of 8% to 11% is really three factors. The first is mid single digit topline growth with strong flow through to EBITDA, the $75 million of expected savings from there.
Optimizing for growth program, and that's going to hit across the P&L and those two more than offsetting the impact of cost inflation on gross margin and as I said before that cost inflation ended up itself has about a 200 basis point negative impact. So those three things really get you to the to the EBITDA guidance.
Okay, that's great and then and if I could just one more quick question on AD spend because it was up pretty sharply and the fourth quarter. As you had planned anything you learned from how you allocated advertising by quarter by brands by channel and I did get all versus legacy and Youre going to carry forward into your programs and your plans for 'twenty one.
Two and 'twenty three.
We generally.
Continued to adjust improve and.
<unk> strength and how we think about demand creation.
And we did move strategically certain spending for Q4 to align better with the patterns that we saw coming into the into the fourth quarter and heading into 2021, and we will continue to adjust our advertising budget as we shift more spend towards digital platforms.
And focus on reaching more consumers.
Wherever they are and be more productive and more effective and our reach.
Thank you.
Thank you and our next question comes from the line of Garrick Johnson with BMO capital markets.
Hey, good afternoon, and thank you.
First you came close to answering <unk> questions on the outlook for the industry.
Bryan yesterday, so totally fair.
If you can give us where you think that number would be in terms of U S and worldwide growth, that's first and <unk>.
Second if Richard has around three straight years of Barbie shipment growth I think it's about five years that's growth and.
And these kind of trends are usually pretty cyclical and the last maybe three to five years, so based on history.
Perhaps barbie should be peaking right about now so do you anticipate growth and Barbie and 'twenty, one and should we be concerned about at the beginning of a down cycle.
And so high.
When you look.
Under the hood of the industry as a whole.
There was different the level of performance by category.
By far the main growth of the entire industry and was driven by the research categories, I mentioned earlier outdoors games and puzzles and building sites.
And they day, we believe that these categories will have more of a challenge.
In 2021, and just simply given the comp being such a strong year.
And the categories were withdrawn dogs vehicles and infant toddler preschool.
Impacted by Covid.
And to some degree our performance Bob.
And kind of doesn't tell the full story, because we just outperformed so strongly but those categories will not benefit from.
The surge related to COVID-19 as much as the other categories I mentioned so.
With that you will see and we will have different performance by category.
Hard to tell what the industry as a whole will land, but we believe.
The categories, where we a global leader will continue to perform well and.
And within that environment, we expect to increase our overall market share.
Yeah.
Garik, it's Richard.
Take the next question proudly.
And I appreciate the history that you have with the brands, but clearly Barbie has been gaining more and more momentum over the last several years, certainly we had a spectacular quarter.
We grew double digits and the quarter and for the year and that's with Pls growing more than 30%. We ended as you know is the number one overall toy property globally.
Which speaks to the strength of the brand and we're confident in and.
The momentum that we have moving into 'twenty, one there's great strong activations planned throughout the year, we had two new animated movie launches on Netflix, where we're extending characters like Chelsea Barbie.
<unk> sister, we have new fashion segments, like Barbie Xtra, and Ken turned 60, and we know how to do and anniversary program will also continue with surprising pop culture, and milestone moments, which we become incredibly well known for to maximize the current momentum and.
And look as the category leader in this high growth category, we've got incredibly exciting new content digital engagement, and we see significant power and opportunity for the expansion and the growth of Barbie.
And it goes to say without taking anything away from Barbie is tremendous success and <unk> been tracking this and we certainly are enjoying the momentum. This is really a story about the success of the overall Mattel playbook.
Barbie is based on the same approach the same methodology capabilities that we've been applying across the portfolio brand purpose. The values of each brand design led innovation cultural relevance and execution excellence and.
And our category structure and centralized DND organization, which we talked a lot about over the last couple of years is filled with extraordinary talent, who work across the portfolio.
Leveraging skill sets and creativity across all brands and the foundation that Barbie has been rebuilt on is strong the growth trajectory, we feel very confident about and in fact, we look forward to sharing a lot more detail with you at the upcoming analyst presentation.
Great. Thank you Richard.
John.
Thank you Derek.
Thank you. Thank you and your next question comes from the line of drew Crum with Stifel.
Okay. Thanks, guys good afternoon.
For directional guidance for infant toddler preschool day.
And you expect to grow Fisher price and 2021.
Core has been better than friends does that dynamic continue this year and I guess asked differently.
And does trend stop being a headwind and then separately you gave us some numbers for ecommerce and the quarter, where did it end up for 2020 and can you remind us.
<unk> has.
And margin relative to our bricks and mortar retailer.
Sure.
We do expect to see continuing improvement and Fisher price core and and with Thomas and the fourth quarter Fisher price core was up a strong 11% and it was driven by growth in its infant little people and imagine X product segments.
We're encouraged by the performance the first positive quarter frankly, since 2016 and as we look to 2021, we have incredible new innovation across product segments to your point Fisher price friends will no longer be a headwind as we exited most of the underperforming license proper.
<unk>.
We remain on track focused on our turnaround strategy and continue to be confident and its long term growth prospects.
Hi, drew responding to the question on E Commerce.
This was another star performer for Us a big driver of.
Business, we grew and the fourth quarter by 40% and for the full year by 50% currently representing a third of our global Pos.
We ended the year as the number one manufacturer and E commerce and the U S and the fourth quarter and we grew our E commerce share and the U S. Both in the fourth quarter and the full year.
And I talk about the U S. Because that's the only market where we have spin.
Specific measurement, but that's a good proxy for our performance and the rest of the world.
Okay. Thanks, guys.
Okay.
Thank you.
And our next question comes from the line of Linda Bolton Weiser with D. A Davidson.
Hi, Thanks.
So when you think about your long term operating margin target I guess back historically your peak was about 18%, but that was a little bit of a rarefied environment, where you had outsized Dol positioning when monster high was growing so it's 18% possible out in the <unk>.
<unk> share or do you need to add some additional major doll franchises to get there and on the subject of dials can you talk a little bit about cave club dose we saw a fair amount of shelf space at Walmart is that a significant line and do you see some opportunity for that for that line. Thanks.
Hi, Linda at this stage, we are giving <unk> zone into 2023 and <unk>.
Phil.
And it enough to share with you <unk>.
We haven't given more.
Inflammation and beyond that.
Mid teen operating income margin at this point.
And as a good a good reference for 2023.
And Linda also we're really pleased with the performance of the overall doll category as you know we manage it as it portfolio K club was a successful launch.
And frankly in a challenging time period, we achieved all the objectives. We had for the brand globally. We continue to believe in launching new brands Cape Club will have a good another year as well as we have Polly pocket, which has been continuing to grow.
Got several regional brands as well like and channels that had a strong performance. So as we look at the doll category. Overall, we expect to continue to see growth with of course Barbie, leading the way.
Great. Thank you very much.
Thank you.
Last question comes from the line of David <unk> with Bamberg capital.
Hey, Thanks, so much no question right too.
Two questions for you guys.
First one around the film slate.
Just curious to get your thoughts on.
I assume you're in pretty regular dialogue with your from studio partners, how the change in film studio economics, that's been experienced throughout this pandemic.
Has it affected the timeline of the projects that you currently have.
Going forward and.
Relatedly to what extent your sort of mid single digit growth outlook dependent on the release of those movies and then second question, a little bit quicker and I just wanted to take another stab and Dimensionalize and sales growth for next year.
Given the the depleted status of inventory I'm wondering if you can maybe quantify the extent to which mid single digit sales is comprised of a inventory rebuild.
Okay, and hi, David So.
The Bemis really still finding its way.
Within the restrictions imposed by the pandemic, but.
And to say.
And with productions are ramping people doing a good job with the right.
Protections and safety protocols, so we expect that to gradually resume and get into more normal cadence.
But not completely done obviously given the.
And the expected impact of Covid.
We that will to some degree impact really schedule, but all of this is moving and hard to see where things where things would land as it relates to our plans and it hasnt really impacted our production calendar day.
Directly because we haven't been we haven't gone into production, but in the meantime, we continue to make a lot of progress on our projects and as you know, we just announced our 11th motion picture.
Target, sorry and film we.
We've been doing a lot of work on scripts casting budgeting and production plans and.
And.
And so and continued interest and a lot of excitement around all of our projects.
There's more coming there's more there's more coming that we haven't announced yet the pipeline is building wheels.
And so making great progress from the TV side with <unk>.
<unk> shows and production and more and development and expect that to compete to continue to build.
This none of that is factored into our margin guidance that we provided that margin is solely driven by the toy side of the business. So as we always say.
Capturing value from our intellectual property as part of our mid to long term strategy. These projects do take time, given the scale and the ambition and we are going about them the right way, but given the level of interest and quantity of partners.
The.
And the strength of these properties, we remain very excited about what this can mean for us and the mid to long term.
For the second part of your question around sales guidance for 2021, while we do expect inventory replenishment that had some impact but the vast majority of our growth will be driven by the performance across our portfolio.
Great. Thanks, so much.
Thank you that is all the time, we have today for questions I will now turn the call back over to chairman and CEO Dino and cries for any closing remarks.
Thank you operator.
And as I said I could not be more proud of the entire Mattel global team not only for their resilience and execution in the face of a pandemic and saw challenging market conditions. This year, but also for stepping up as a responsible corporate citizen and leveraging our resources to support consumers customers business partners and the <unk>.
And it is where we live work and play.
It's important to say that the fourth quarter was our best performance and years, but this is not just about the quarter or the year, but a multiyear turnaround that is tracking very well, which puts us and our strong position to continue to increase profitability and accelerate growth in 2021 and beyond.
And we look forward to sharing with you more detail and our ongoing progress to become and IP, driven and hyperkalemia and high performing toy company at our virtual analyst.
Analyst day on February 24th and.
And we thank you for your time and interest I will now turn the call back to Dave to provide the replay details. Thank you.
Thank you Yvonne and thank you everyone for joining the call today.
A replay of this call will be available via webcast and audio beginning at 830 PM Eastern time today.
The webcast link can be found on our on our investors page or for.
An audio replay please dial four zero for $53 seven three for zero six.
The pass code is for 89453 for thank.
Thank you for participating in today's call.
Ladies and gentlemen, thank you for participating in today's conference call. Thank you for participating and you may now disconnect.
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