Q1 2023 Mattel Inc Earnings Call

Speaker 1: that we may refer to gross billings as billings in our presentation. And that gross billings figures reference on this call will be stated in cost and currency unless stated otherwise.

Speaker 1: For today's presentation, references to POS and consumer demand exclude the impact related to our Russia business.

Speaker 1: given our decision to pause all shipments into Russia in 2022.

Speaker 1: Our slide presentation can be viewed in Sync with today's call when you access it through the Investor section of our Corporate website.

Speaker 1: Corporate.metel.com

Speaker 1: The information required by regulation G regarding non-GAAP financial measures, as well as information regarding our key performance indicator, is included in our earnings release and slide presentation. Both documents are also available in the Investor section of our corporate website. The preliminary financial results included in the press release and slide presentation.

Speaker 1: Completion of the review by the company's independent, registered public accounting firm, and other developments that may arise between now and the disclosure of the final results.

Speaker 1: Before we begin, I'd like to caution you that certain statements made during the call are forward-looking, including statements related to the future performance of our business, brands, categories, and product lines.

Speaker 1: Any statements we make about the future are, by their nature, uncertain. These statements are based on currently available information and assumptions.

Speaker 1: they are subject to a number of significant risks and uncertainties that could cause our actual results to differ from those projected in the forward-looking statements.

Speaker 1: We describe some of these uncertainties in the risk factor section of our 2022 annual report on Form 10K, our earnings release and presentation, and other filings we make with the SEC from time to time.

Speaker 1: as well as in other public statements.

Speaker 1: Mattel does not update forward-looking statements and expressly describes any obligation to do so except as required by law. Now, I'd like to turn the call over to E-NON.

Speaker 1: Thank you for joining our first quarter 2023 earnings call.

Speaker 2: As anticipated, first quarter results were negatively impacted by elevated retail inventory levels.

Speaker 2: That said, the underlying business performed well, both in absolute and relative terms, with overall growth in consumer demand for our product and market your gains for Mattel.

Speaker 2: Looking at key financial metrics for the first quarter as compared to last year.

Speaker 2: Next sales decline 22% as reported or 21% in constant currency.

Speaker 2: And adjusted EBIDA declined $166 million to a negative $14 million.

Speaker 2: Our first quarter decline was primarily due to the negative impact from retailers managing inventory levels, which were elevated entering the year, and also due to the comparison to the year ago quarter, which benefited from retailers building earlier in the season.

Speaker 2: excluding Russia for comparability,

Speaker 2: Total company POS was up mid single digits with double digit growth in our international segment and flat POS in North America.

Speaker 2: Persir Khanna, formerly known as the NPD Group, Mattel gained share globally in our three leader categories.

Speaker 2: as well as in action figures and building sets.

Speaker 2: These broad-based market share gains speak to the strengths of our portfolio.

Speaker 2: We believe retailers will continue to adjust inventories in the second quarter, negatively impacting gross billings, and that the situation will be corrected by the end of the first half.

Speaker 2: Reflecting our strong financial position and confidence in our strategy, we resumed share repurchases in the quarter and looked to make further repurchases this year.

Speaker 2: The fundamentals of our business are strong. We expect to outpace the industry, gain market share and achieve our full-year guidance.

Speaker 2: Looking at gross billings in the quarter.

Speaker 2: All categories declined as a result of retailers managing elevated inventory levels with the exception of vehicles which was up.

Speaker 2: With respect to the power brands, Barbie and Fisher-Price declined while Hot Wheels grew.

Speaker 2: The global rollout of Manstehai and the launch of our Disney Princess and Frozen products are both off to a good start.

Speaker 2: POS significantly alters gross billings by double digits in all categories and all power brands. We have been successfully executing our strategy to grow Mattel's IP driven toy business and expand our entertainment offering.

Speaker 2: On the toy side of the company, we recently announced a new and separate licensing agreement for Disney's Wish, releasing in November of this year.

Speaker 2: The relaunch of Barney and our first ever licensing agreement with Hasbro to create co-branded toys and games.

Speaker 2: And we launched last weekend a new line of Disney, the Little Mermaid dolls, as part of our Disney license agreement ahead of the upcoming theatrical release.

Speaker 2: We also made progress in capturing value for RIP outside the toy aisle, and recently announced the Hot Wheels Ultimate Challenge Primetime Show on NBC and the Barbie Dreamhouse Challenge, a new home makeover competition series on AGTV both airing this summer.

Speaker 2: The Hot Wheels refrily mix reality racing game on PlayStation and iOS.

Speaker 2: Enumance the High Life Tour.

Speaker 2: the launch of our own publishing business and a new multi-year apparel and accessories partnership with GAP

Speaker 2: Excitement continues to build for the Barbie movie, one of the most anticipated films of the year, which premieres worldwide on July 21st.

Speaker 2: The second teaser was released earlier this month with significant global coverage.

Speaker 2: Expect more momentum in social media and marketing activities to accelerate towards the release of the movie.

Speaker 2: increasing

Speaker 2: While retail inventory management impacted the first quarter results, the underlying business continued to perform well, with overall positive consumer demand for our product and growth in market share.

Speaker 2: We believe the retail inventory situation will be corrected by the end of the first half and anticipate a return to shipping patterns more aligned with historical trends in the second half.

Speaker 2: Overall, consumer demand for our product is often a good start and we expect to achieve our full-year guidance.

Speaker 2: Balance sheet is in a strong position and provides the flexibility to support growth.

Speaker 2: We are well positioned to continue executing our multi-year strategy and create long-term shareholder value. And now I will turn the call over to Anthony. Thanks, Denon. As Anon said, our first quarter results were negatively impacted by movements in retail inventory levels.

Speaker 2: The first quarter's decline was primarily due to the negative impact from retailers managing inventory levels, which were elevated entering the year, and also due to the comparison to the year-ago quarter, which benefited from retailers building earlier in the season.

Speaker 2: First quarter results were finally ahead of the outlook we provided in mid-March, driven by the favorable timing of shipments at quarter-end.

Speaker 2: net sales of $815 million declined 22% or 21% in constant currency compared to the prior year.

Speaker 2: However, we saw positive POS performance in both absolute and relative terms, which grew mid-single digits in the quarter and significantly outpaced gross billings.

Speaker 2: Mattel outperformed the industry and gained market share. As a reminder, POS and consumer demand exclude the impact related to our Russia business.

Speaker 2: Adjusted Gross Margin declined 660 basis points to 40%.

Speaker 2: due to several factors including inventory management costs and the negative scale impact associated with the sale of decline.

Speaker 2: Adjusted operating income declined by 177 million to a negative 87 million primarily due to the lower sales and lower adjusted gross margin.

Speaker 2: Adjusted EPS with a negative 24 cents compared to a positive 8 cents a year ago, and adjusted EBITDA declined by 166 million to a negative 14 million.

Speaker 2: We expect consumer demand to be positive for the full year and revenue comparisons to improve through the year as shipping patterns revert to historical trends in the second half.

Speaker 2: Turning to gross billings in constant currency, performance across categories was primarily impacted by movements in retailer inventory levels.

Speaker 2: that had an outsized impact on a seasonally small quarter.

Speaker 2: While gross buildings declines 21 percent, including a negative three-point impact from Russia,

Speaker 2: There was overall positive consumer demand for our products as POS increased mid-single on our Healthri precis??reiravavavavavavavavavavavavavavavavavavavavavavavavavavavavavava

Speaker 2: Dolls declined 22% primarily due to declines in Barbie, partly offset by growth in Monster High and Disney Princess and Frozen.

Speaker 2: POS for DALF increased low single digits.

Speaker 2: Barbie POS was down high single digits, but significantly better than shipping, which declined 40%. POS and shipping for Barbie were also impacted by the shift of promotions into Q2 to better align with the atrical release of the movie.

Speaker 2: Mattel gained over 350 basis points of market share in the dolls category in Q1 and Barbie was the number one doll property globally.

Speaker 2: Vehicles grew 1% with POS up low double digits.

Speaker 2: ROTE was primarily driven by hot wheels, die-cast vehicles.

Speaker 2: Mattel gained over 530 basis points of market share in the vehicles category, achieving the highest Q1 market share on record per CERCAANA.

Speaker 2: Incent dollar in preschool declined 26% while POS was down low double digits.

Speaker 2: POS declines in baby gear as we optimized the offering were partly offset by growth in little people and Imaginext. Mattel was the number one toy company globally in the infant toddler preschool category and gained 60 basis points of market share in the quarter per Sircana.

Speaker 2: Challenger categories in aggregate declined 38%, primarily due to lower sales and action figures as we lapped the theatrical tie-ins in the prior year. POS was up low double digits.

Speaker 2: calendar categories in aggregate declined 38% primarily due to lower sales and action figures as we laugh the theatrical tie-ins in the prior year. POS was off low double digits. With respect to regional performance.

Speaker 2: North America declined to 27% reflecting the retail inventory headwinds. The OS was flat compared to last year.

Speaker 2: Per Sarkana, Mattel gained market share in North America in Q1. Emea declined 24 percent, including a negative 12-point impact from Russia, and also reflecting the retail inventory headwinds. POF increased double digits.

Speaker 2: Latin America brewed 1%

Speaker 2: POS increased double digits. For Circana, Mattel gained market share in Latin America in Q1, extending our number one market position.

Speaker 2: Asia Pacific increased 17% driven by growth in all key markets.

Speaker 2: POS declined mid-single visits primarily due to China.

Speaker 2: and elevated heading into 2023.

Speaker 2: This position improved in the first quarter with levels ending slightly below the prior year in both dollars and we supply.

Speaker 2: While improved, quarter-end retail inventories remain slightly elevated, which is expected to negatively impact our second quarter gross billings as retailers continue to adjust their position.

Speaker 2: Adjusted gross margin declined 660 basis points to 40% in the quarter.

Speaker 2: The decline was due to several factors.

Speaker 2: due to several factors. Inventory management.

Speaker 2: Primarily closed out sales and obsolescence of 420 basis points.

Speaker 2: Cost inflation of 210 basis points.

Speaker 2: Fix cost absorption of 140 basis points associated with lower volume.

Speaker 2: and mix and other factors of 140 basis points.

Speaker 2: These negative factors were partly offset by price increases, primarily the carryover benefit from 2022 actions, which contributed 120 basis points.

Speaker 2: and savings from the Optimized and ProGrowth program, which had a positive impact of 120 basis points.

Speaker 2: Moving down the P&L, advertising expenses increased 3% to $76 million.

Speaker 2: Moving down to P&L, advertising expenses increased 3% to $76 million, supporting POS growth in the quarter.

Speaker 2: Adjusted SG&A increased 5% to $336 million are merely due to market-related pay increases.

Speaker 2: Parliog set by Savings from the Optimizing for Growth Program.

Speaker 2: Adjusted operating income with a negative $87 million compared to a positive $90 million a year ago.

Speaker 2: The decline was due to lower sales and lower adjusted gross margin.

Speaker 2: Adjusted EBITDA declined by 166 million to a negative 14 million impacted by the same factors.

Speaker 2: Cash from operations was a use of $216 million reflecting the seasonality of the business compared to a use of $144 million in the prior year.

Speaker 2: The increase in use of cash was due to lower net earnings, partly accept by reduced working capital requirements.

Speaker 2: Capital expenditures were $43 million compared to $36 million a year ago, and free cash flow was a use of $249 million compared to a use of $180 million in the first quarter of 2022.

Speaker 2: On a trailing 12-month basis, we generated $187 million in free cash flow, compared to $226 million in the prior year.

Speaker 2: The decline was primarily due to capital expenditures, which increased $42 million to $193 million.

Speaker 2: With positive free cash flow, a strong financial position and confidence in our outlook, we have resumed share-re-purchases.

Speaker 2: Taking a look at the balance sheet.

Speaker 2: compared to $537 million in the prior year.

Speaker 2: The decline reflects the use of cash to reduce debt and repurchase shares, mostly offset by free cash flow generated over the trailing 12 months.

Speaker 3: to 2,327,000,000.

Speaker 3: From $2,572 million last year, reflecting the repayment of $250 million of debt in the fourth quarter last year. Account receivable declined by $188 million to $674 million.

Speaker 3: in line with the decline in sales.

Speaker 3: Inventory was $961 million, slightly down from the prior year of $969 million, as we have continued to achieve sequential improvements in year-over-year levels.

Speaker 3: Looking ahead, we believe we are well positioned to achieve inventory reductions in 2023.

Speaker 3: which will contribute to free cash flow generation. Leverage ratio increased to 2.9 times at the end of the first quarter compared to 2.4 times a year ago.

Speaker 3: The increase is primarily due to the timing of our quarterly results. We expect to end 2023 with a leverage ratio of approximately 2.5 times.

Speaker 3: program launched in 2021.

Speaker 3: As previously announced, we raised our program saving the goal to $300 million by 2023, and we are confident that we will achieve that target.

Speaker 3: We expect incremental savings of $96 million in 2023. We now expect total estimated cash expenditures to implement the program to be $155 to $185 million, a slight increase from our prior estimate.

Speaker 3: We are reiterating our full year 2023 guidance, consistent with our February investor presentation.

Speaker 3: This includes our expectation for net sales to be comparable to last year in constant currency.

Speaker 3: adjusted EPS in the range of $1.10 to $1.20.

Speaker 3: adjusted EBITDA of $900 to $950 million, and for free cash flow to exceed $400 million.

Speaker 3: In terms of phasing, we expect growth buildings in the second quarter to be negatively impacted by retailers continuing to manage their inventory and for shipments in the second half to revert to historical trends. This will result in an accelerated growth rate.

Speaker 3: particularly in Q4, as we wrap an atypical inventory decline in the prior year. We are operating in a challenging macroeconomic environment with higher volatility than may impact consumer demand.

Speaker 3: The guidance considers what the company is aware of today, but remains subject to further market volatility, any unexpected disruption, and other macroeconomic risks and uncertainties. In closing, we're off to a good start.

Speaker 3: with overall growth and consumer demand for our product and market share gains and believe we are well positioned to achieve our full year guidance.

Speaker 3: And now I will turn it over to the operator.

Speaker 4: At this time, I would like to remind everyone in order to ask the question, press star one on your telephone keypad.

Speaker 4: We'll pause for just a moment to compile the question and answer roster.

Speaker 4: Your first question comes from the line of Drew, Crom, from people. Your line is open.

Speaker 5: Okay, thanks. Hey guys, good afternoon. So Anthony, I think, you know, earlier in the year, you suggested that working through a success of retail inventory would save three to four points of growth from sales this year. How is the business tracking of that target? How much of that was recognized or absorbed during 1Q and what remains?

Speaker 3: and then I have a follow up. Okay, you know, we are generally, you know, on track with respect to retail inventory reductions and, you know, believe the situation will be corrected by the end of the first half. And it's just for, you know, more, you know, contacts, you know, as we said on our fourth quarter call, retail inventory levels at year end were above prior year and elevated at.

Speaker 3: in the second quarter and that that situation will be corrected by the end of the first tap.

Speaker 5: And then maybe for Inan or Richard, I know you guys are only one quarter in, but can you comment on the allocation of shelf space for your existing legacy doll brands now that you've launched or relaunched, rather, Monster High and you've added back Disney Princess and Frozen? Are you finding that there's cannibalization or that everything can coexist together? Thanks. Yeah, I'll start. First of all, I'll start. First of all, I'll start.

Speaker 6: Barbe POS held up very well in a very competitive category which had seen, you know, a significant amount of discounting from competitors. But overall, just to simply answer the question in terms of space, we feel very confident as we move into the back half. And certainly our doll portfolio is the strongest in the industry.

Speaker 6: and arguably in the history of Mattel. As I've said often, this is the Year of the Doll.

Speaker 2: And just to add, comment, the flat is on a light for light bases, but we did, we do obviously have more capacity for months, the high and business princess. So there was no cannibalization between these brands and what we already have in the system. Got it. Okay. Thanks guys. Your next question comes to.

Speaker 7: single digit that you reported because you know we served out a little bit earlier this year versus last year and then I have a quick follow up.

Speaker 3: Yeah, hi, I think the best way to think about, you know, in April , obviously, we're up in Q1. And when you look at year to date, including early April , you know, we're also positive. Right. So I think that's the best way to look at it. Perfect. No, that's very helpful. Thank you.

Speaker 7: And, you know, earlier in the year, I think you had said that net sales cadence could return to that 30%, 35% in the first half and then 65%, 70% in the second half. Is that still the expectation? Does that still hold?

Speaker 7: If so, that would still imply Q2 down about maybe 18%, 20%. Am I thinking about it the right way and then the back up mid-teens or something?

Speaker 3: Yeah, very, very much so. If you look at the decade leading into 2021, on average we do about one third in the first half and two thirds in the second half. And the anomaly was really in 2022 where we did 42% in the first half and 58% in the second half. And we're wrapping that and that's what's causing this first half, second half.

Speaker 7: growth-variant. Okay, okay. Thank you. And then I apologize for a third question, but I'm hoping you could touch and light on this because I think there's a lot of sort of opinions out there. Kind of if you could give it some color on consumer products mix at retail for each of your power brands.

Speaker 7: and particularly for Barbie, obviously you're making a big push here with a film coming up. How should we think about the economics of that maybe in terms of participating in consumer products outside of the toy aisle, kind of royalty rates? Anything you could share, I'm sure you can't, you know, maybe might not be able to share royalty rates that you earn on those third party revenues, but anything you could give to help us think about these opportunities.

Speaker 6: that you will be announcing. Example was obviously Gap that you just announced recently. Thank you. First off, 2023 in particular is gonna be a legacy making year, particularly on the Barbie brand.

Speaker 6: As we have all seen, the first ever live action film has got an incredible cultural conversation. From there, it's a catalyst to also drive meaningful extensions of the brand outside of the toy aisle as we've shared. We've accelerated our presence in scripted and unscripted television.

Speaker 6: We have live experiences now that are taking place all over the world. Mobile gaming has also expanded, digital collectibles, and of course, as you mentioned, consumer product partnerships. We've shared some of the consumer product partnerships recently, but you're going to be hearing a lot more in the coming weeks around.

Speaker 6: significant and meaningful partnerships outside of the toy aisle. It really is a catalyst for us to extend the investment thesis of unlocking the value of our IP and through the and content and digital gaming and extensions really give us the opportunity to broaden our reach.

Speaker 2: drive revenue, monetize the brand as a franchise, and you'll be hearing much more about the impact of that in the future. In terms of accretion, these are all margin accretive opportunities. So CP, all the licensing opportunities that Richard mentioned are all margin accretive.

Speaker 8: Thank you very much.

Speaker 4: Your next question comes from the line of Eric Handler from Roth MKM. Your line is open.

Speaker 3: Thank you very much for the question. Appreciate it. I mean, good afternoon to everyone. Two questions. First, as we look at the expected cadence for the year and then I appreciate what you've given so far. But as you look at the back half, some years, 3Q is larger than 4Q. Some years, 4Q is larger.

Speaker 3: certainly ease as we progress through the year, right? And that's more so for Q4 than Q3. And as we said, we do expect shipments in the second half to revert to historical patterns, that is two thirds in the back half. And what you'll see is an accelerated growth rate in gross building, particularly in Q4.

Speaker 3: as we wrap in a typical, you know, seasonal shipping in the prior year, right? And I think it's important to note that that accelerated growth rate in gross billings is not dependent on accelerated POS growth because even if you assume stable POS, you'll get a double digit increase in gross billings in Q4.

Speaker 3: by simply returning to those historical patterns.

Speaker 9: Okay. Sorry, I'll follow up with him. I'll see that. But once I'm Richard, I feel like I record our masking about how hot wheels remain so strong. When you look at the growth that you achieved in hot wheels, is it a function of, you know, you've got really good, low price items for this retail environment? And for an,hmm.

Speaker 6: or is it the product extensions that you've had? Is there anything you could sort of point to that suggests why Hot Wheels just continues to perform so well? Yeah, well, thanks for the question. You know, there really is kind of an all-encompassing strategy in Hot Wheels that follows the Mattel playbook.

Truthfully, it's been driven by innovation, specifically incredible innovation product across the brand, cultural relevance, which continues to be a really important part of the brand's narrative, and we're seeing the results of it. The growth is primarily driven by die-cast vehicles.

We gained over 530 basis points of marketer in the vehicle's category, and obviously that's been led by the power of Hot Wheels. We're in our fifth consecutive biggest year ever heading to our sixth consecutive record year.

We also continue to expand the distribution of our core diecast vehicles aggressively. We've been targeting both kids and adult collectors, which is primarily a growth engine within the brand itself. And as I mentioned, innovation is core to the Hot Wheels growth strategy. We've launched two...

Specific segments last year in 2022 Hot Wheels RC and Hot Wheels Skate both have been successful entries in gaining momentum. We're going to be expanding into even more additional play patterns this fall. So look all in all between our demand creation that's very effective, innovation that's you know driving new segmentation and great

excitement and cultural relevance. We can't be more excited about the growth ahead for the Hot Wheels brand.

And Eric, just to remind you that we also have two movies in development. One for Hot Wheels with J.J. Abrams to produce at Warner Brothers, and Matchbox with Skydance, the producer of Top Gun and the Mission Impossible series.

So expect more in this category, as Richard said, very exciting space for us. Thank you. Your next question comes from the line of Jared Johnson from BMO Capital Markets. Your line is open.

Great, thank you. Hey, Anthony, sort of a technical question on the clearing of retail inventories. Where does that hit? I would have thought to sell ounces, but those looked pretty much flat.

So what is it that impacts gross margin to bring it down 420 basis points, accounting-wise? Yeah, sure, Garak. I mean, you're right. Our Q1 sales adjustments were fairly comparable to the prior year. Where we're seeing the impact on our gross margin is through closeout sales as well as obsolescence, neither of which go through sales adjustment but obviously impact our gross margin.

And maybe for Richard or Steve, the POS growth, you know, there's two ways to interpret that either as strength or as an area where you're seeing more closeouts.

So I understand you were seeing strength in Hot Wheels But where are some other areas where that POS is strength and where are some areas where that POS is just clearing a lot of closeouts?

Well, you know, overall, you know, consumer demand for our product was positive, both in the first quarter and year to date, including early April . The expectation as we move forward is that that will only accelerate.

in the context of our products and programs and certainly as we enter into the second half. As we said, we're reiterating our full year guidance and we expect certainly, you know gross billings in the second quarter to continue to be negatively impacted by the retailers continuing their inventory and retail inventory situations.

But that will be course corrected by the end of the first half. And with continued POS momentum, we'll start to see some great results in the back half. Yeah, and just to add to Richard's coin, when we look at consumer take away, we are not seeing an aggregate of any significant increase in the level of discounting overall. Obviously, that is very...

you know, by category, but when we look at, you know, fixed dollars or scan dollars, the aggregate change is relatively consistent.

Okay, well maybe let me ask more. In action figures, Billing, Setsuke, and others, what drove that POS growth?

A lot of that was driven by action figures, primarily Jurassic World.

Thank you very much. Go ahead, Richard. I was going to say as we look at the Challenger categories, in particular, construction with mega has been led by Pokemon and the extensions that we have driven into that category with Hot Wheels.

And Barbie continues to gain momentum as well. But Anthony kind of reiterated the action figure comment. Great. Thanks guys.

continues to gain momentum as well. But Anthony kind of reiterated the action figure comment. Noted, great, thanks guys. News, thanks.

Your next question comes from the line of Linda Bolton-Wyther from DA Davidson. Your line is open. Thank you. I was curious why you think the international POS growth was so much higher than in the U.L.

And then secondly, sorry if I missed this, but did you say something about shipments being particularly strong toward the end of the quarter? Because I know, Anthony, that you said something about revenue decline being even higher than it ended up being like earlier in March at a conference.

So was it that the last two weeks of March were really strong in terms of shipments? Thank you So start with the second part of the question, you know relative to the expectations we provided in March right our supply chain performed very well. We were able to fulfill

incremental shipments at the end of the quarter. And it's really just a shift between Q1 and Q2. Doesn't impact our full year outlook in terms of sales.

In terms of the other part of your question, when we look across our regions, I think the question is around POS. And EMEA had a strong POS. They were up low double digits. Latin America was also up low double digits. While North America was flat.

But I think in terms of North America, it's important to recognize, you know, that we actually outpace the industry and gain share.

Okay. Thank you.

Your next question comes from the line of Stephen, last six from Goldman Sachs. The line is open.

Hey, great. Thanks. Maybe for Anthony. Could you remind us maybe to what degree fixed cost absorption is expected to be ahead when this year and to what degree that could be an opportunity is business pattern and normalize both in the back half of this year and into 2024.

Yeah, let me answer that in the context of the full year growth margin outlook. We expect growth margin to improve to 47% compared to 45.9% last year. And the key drivers for that on the positive side, pricing, that's primarily the carry over impact 2022 action.

are targeting to reduce our own inventory levels. And that is having a one-time negative impact on gross margin in 2023. So to your point, there should be upside in 2024 on that factor. And also in terms of cost inflation, we now expect cost inflation to be neutral to our full year 2023 guidance.

opportunity to maybe ramp up buybacks as the balance sheet delivers into the back half of the year.

We're very happy to be in the position to resume the share buyback program. That's the first time in nine years that we've bought our own stock and really is a reflection of our ability to generate free cash flow, our financial position and confidence in our outlook. In terms of looking ahead, we do expect to make further repurchases in 2023. We haven't given specifics.

Hey, good afternoon and thanks for taking my questions.

So the first one, just on POS in one queue, you called out the mid-single digits. I'm curious, was that in line with your initial plan or did it come in above? And then what are you expecting for POS growth in the remainder of the year? Yeah, starting with the full year in the context of our guidance.

I would say we're kind of on track in the first quarter. We outpaced the industry and gained market share. So off to a good start.

Great. Thank you. And then on – and this one is also for you – for the inventory clearance or inventory management headwind to gross margin, is that expected to continue? So, should we see another headwind in 2Q or are we past that now?

I think we'll see some headwind, but certainly less than the level we saw in Q1. And just important to note that we're going to wrap in Q4, right, negative costs that we had in 2022. So it should be a good guy to margin when we get to the back half. Thank you.

see some headwind, but certainly less than the level we saw in Q1. And just important to note that we're going to wrap in Q4, right, negative costs that we had in 2022. So it should be a good guy to margin when we get to the back half. Next time. Thank you. You're welcome.

Your final question comes from the line of Fred Whiteman from Wolf Research. Your line is open.

Hey guys, I just wanted to come back to Barbie. I mean if we look at the bookings in the quarter down 40% They were down 30% last quarter. I think you said POS this quarter was down high single digits do you feel like the brand is well positioned to make the most of the upcoming movie launch or not Look we are incredibly confident and

with the theatrical release of the movie. In Q2, we are expecting a much better performance compared to Q1. And we're really confident that we're going to continue to gain momentum in the back half and grow in the full year. You know, it's also important to recognize Barbie's part of our dollars portfolio, which continues to be.

leading portfolio in the industry where we gained 350 basis points of market share in the first quarter. We've got extraordinary innovation that's lined up as always for the back half. The cultural conversation around Barbie is only highlighting the importance of the brand and the age extension that we have as well both in our core...

And then just embedded in your POS outlook for the year, are you still expecting the industry to be flat to slightly positive or has that changed? Yeah, no change in our estimate regarding the industry flat to slightly up. We believe the toy industry is a growth industry. We expect it will continue to grow over time.

movies in 2023 alone led by the Barbie movie but other movies as well. We're seeing toys and play remaining a significant part of life for children and families and we believe that while there are still some macroeconomic challenges facing consumers.

the industry will be flat to slightly up.

Perfect. Thank you.

Thank you.

This concludes our question and answer session. Mr. Inan Krij, Chairman and Chief Executive Officer, I turn the call back over to you.

Thank you, operator, and thank you, everyone, for your questions. In summary, while retail inventory management impacted the first quarter's results, the underlying business performed well, and our fundamentals are strong. We expect consumer demand to be positive for the full year, that we will outpace the industry, and sell Great Britain's history.

to transform Atel into an IP driven, high performing toy company. It continues to be a privilege to work with such a talented team. And I look forward to many opportunities ahead for the company and doing more great things together. Thank you again for joining the call today.

And now I'll turn the call back over to Dave. Thank you, Inan, and congratulations on your five-year anniversary. Thank you for everyone joining the call today.

The replay of this call will be available via webcast beginning at 830 p.m. Eastern time today The webcast link can be found in the events and presentation section of our investors section of our corporate website corporate.mattel.com

Thank you for participating in today's call. This concludes today's call. You may now.