Q2 2023 Mattel Inc Earnings Call
Good afternoon, My name is Emma and I will be your conference operator today.
At this time I would like to welcome everyone to the Mattel, Inc. Second quarter 2023 earnings Conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press the star one thank you.
David <unk> head of Investor Relations.
You may begin your conference.
Thank you operator, and good afternoon, everyone.
Joining me today are on cries, Mattel's, Chairman and Chief Executive Officer.
Richard Dickson, Mattel's, President and Chief operating Officer.
Anthony Disilvestro, Michelle's Chief Financial Officer.
As you know this afternoon, we reported Mattel's 2023 second quarter financial results.
We will begin today's call with <unk> and Anthony providing commentary on our results.
After which we will provide some time for a non Richard Anthony to take questions.
To help supplement our discussion today, we have provided you with a slide presentation.
Our discussion slide presentation and earnings release May reference non-GAAP financial measures, including adjusted gross profit and adjusted gross margin.
Adjusted other selling and administrative expenses.
Adjusted operating income or loss and adjusted operating income or loss margin.
Adjusted earnings per share adjusted tax rate.
Earnings before interest taxes, depreciation and amortization or EBITDA.
Adjusted EBITDA free cash flow free cash flow conversion leverage ratio net debt and constant currency.
In addition, we may present changes in gross billings, a key performance indicator.
Please note that we may refer to gross billings as billings in our presentation.
Gross billings figures referenced on this call will be stated in constant currency unless stated otherwise.
For today's presentation references to Pos and consumer demand exclude the impact related to our Russia business.
Given our decision to pause all shipments into Russia into 2022.
Our slide presentation can be viewed in 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 as well as information regarding our key performance indicator is included in our earnings release and slide presentation and both documents are also available in the investors section of our corporate website.
The preliminary financial results included in the press release and slide presentation represent the most current information available to management.
The company's actual results when disclosed in its Form 10-Q may differ from these preliminary results as a result of the completion of the company's financial closing procedures.
Final adjustments 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.
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.
Any statements, we make about the future are by their nature uncertain.
These statements are based on currently available information and assumptions.
And they are subject to a number of significant risks and uncertainties that could cause our actual results to differ from those projected in the forward looking statements.
We describe some of these uncertainties in the risk factors section of our 2022 annual report on Form 10-K.
Our Q1 2023 quarterly report on Form 10-Q.
Our earnings release and presentation.
And the other filings, we make with the SEC from time to time.
As well as in 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 would like to turn the call over to <unk>.
Thank you for joining our second quarter of 2023 earnings call.
<unk> second quarter financial results were in line with company expectations.
But at this moment in time will largely be remembered as a key milestone in our company's history.
The release of our first ever theatrical movie to a global audience as part of our strategy to expand our entertainment offering and capture the full value of our IP.
We will talk more about the Barbie movie shortly.
Turning to financials.
Sales trends improved significantly from the first quarter, but were down versus the prior year.
This was primarily due to the continued impact of retailers managing inventory levels and industry softness as well as comparisons to the year ago quarter, which benefited from retailers building inventories earlier in the season.
Looking at key financial metrics for the second quarter as compared to last year.
Net sales declined 12% as reported or 13% in constant currency.
Adjusted EBITDA declined $37 million to $148 million.
And trailing 12 month free cash flow increased by $214 million to $361 million.
POS was down high single digits in the quarter.
And down low single digits for the first half of the year.
<unk> continued to exceed shipping.
Firstly a corner.
In the second quarter and year to date <unk>.
<unk> gained share globally and in our three later categories.
Vehicles, and infant toddler and preschool.
Reflecting our strong financial position and confidence in our strategy.
We continued to repurchase shares in the quarter and we look to make further repurchases this year.
Our retailers have made considerable progress in adjusting their inventories of Mattel products and are below prior year levels.
While the toy industry declined more than we expected in the second quarter. We believe consumers are differing purchases in anticipation of increased spending during the holiday season.
However, given first half trends, we now expect the industry to decline modestly for the year.
But remain significantly above pre pandemic levels.
The fundamentals of our business are strong.
We expect to outpace the industry gain market share.
And are reiterating our full year guidance.
Looking at gross billings in the quarter.
Dolls and vehicles grew.
While infant toddler and preschool and our challenger categories declined.
With respect to the power brands.
Barbie and Fisher price declined.
Hot wheels grew.
The global rollout of Monster high and the launch of Disney Princess and Disney Frozen are building momentum.
We continue to successfully execute our strategy to grow Mattel's, IP, driven toy business and expand our entertainment offering in the second quarter.
As it relates to our toy business with.
We launched a wide range of Barbie movie related toys and products.
Releases to date have sold out across major distribution channels, and we will be expanding the range in the second half.
We continue to expand our franchise brands with the launch of new innovative products, including hardware is very diverse and new character driven play system.
We renewed our multi category licensing partnership with Warner brothers for their portfolio, including the DC universe that Wills and Harry Potter among others.
As it relates to our entertainment business.
The Barbie movie premiere the globally last Friday, two incredible success and became the largest opening weekend at the box office of 2023.
This first production of Mattel films brought together some of the world's most prolific filmmakers and talent of our generation.
The World Class, Bob the marketing organization, and Matteo has broad expertise in demand creation in.
And strong collaboration with Warner Brothers film promotional engine and global distribution platform has.
We have made the movie hard to ignore.
The success at the box office during the first weekend combined with positive film reviews, and the entire buildup towards its release made its more than a movie.
It has become a cultural phenomenon.
Exceptional media coverage and product tie ins cross platform amplification from Warner Brothers Discovery cable and streaming services.
Global philanthropic campaign.
And of course.
Sell our toy line significantly broaden the film's reach and fan engagement.
Yeah.
We could not be prouder of their creative vision and execution of Greta Gerwig.
And are grateful for their partnership with Margot Robbie and lack of chaplain entertainment.
Bound back David Heyman and of course, Warner Brothers commitment to the project from the very beginning.
This would also not have been possible without the dedication of the Mattel films and Barbara teams and everyone at Mattel who have been a part of the Barbie movie.
This is a milestone moment for Mattel and a showcase for the cultural resonance of our IP.
Our ability to attract and collaborate with top creative talent.
And the capabilities of our franchise management organization.
This also speaks to the potential of Mattel films and the significant progress of our strategy to capture the full value of our IP.
We will continue to make good progress in capturing value of our IP outside of toy aisle in other areas as well.
As part of the Barbie movie.
Mattel partnered with Warner Brothers, and Warner Music Group to release, the Barbie music album produced by Mark Ronson.
The album features a stellar lineup of some of the most celebrated music artists in the world.
Including duo Leper, Nicki Minaj and I Spice <unk> Litho, Sam Smith.
And the other major global talent.
<unk> also entered into over 165 consumer product partnerships tied to the Barbie movie with cross category displays in thousands of stores globally.
In television.
The Barbie Dream House Challenge, a home makeover competition series hosted by Ashley Graham.
Premiered July 16th on HGTV to great success.
The episodes ranked as a top five cable premiere among women and adults 25 to 54 years old.
The hardware is the ultimate challenge Primetime show, which premiered on NBC and Peacock on May 30 <unk>.
Formed well and ranks as a top NBC alternative series two launching peacock.
In digital gaming.
Hot wheels Anish tool.
Turbocharge the upcoming sequel to the successful digital game for consoles and PC was announced.
The game will launch this fall.
And in live events Martel announced the Monster High live tour.
Also coming this fall in partnership with the family Entertainment live.
As we announced today, Richard Dickson, President and Chief operating Officer will step down from his position with the company effective August 3rd 2023.
I would like to thank Richard for his tremendous contributions to the company and congratulate him on his opportunity to become CEO of Gap Inc.
Richard has led the growth of some of the world's most iconic and purpose driven brands.
I am personally grateful for the friendship the partnership and for his work in developing and growing the best brand and franchise team in the business today.
We wish Richard Great success in his new role.
The company has promoted lithium ignite two executive Vice President and Chief brand Officer.
We're seeing all of Mattel's toy categories and global brands as.
As well as design and development.
Josh Silverman has been promoted to executive Vice President and Chief franchise Officer.
His role has expanded to include leadership of digital gaming and licensed Entertainment. In addition to his responsibilities overseeing global consumer products publishing promotions and location based entertainment businesses.
As well as franchise strategy and management for Mattel.
Lisa and Josh will report to me.
The company has also promoted Chris down to executive Vice President and Chief Design Officer reporting to Lisa.
Lisa has held senior leadership positions at Mattel for nearly 25 years.
And has been the global head of Barbara since 2016 and dogs since 2019.
In this role she has led the charge in repositioning and scaling the Barbie brand and driven significant portfolio expansion with complementary brands.
She has also led the successful relaunch of Monster high and played a key role in winning back the licensing rights to Disney Princess and Disney frozen franchises.
Josh Silverman joined Mattel in 2022, as global head of consumer products and Chief franchise Officer.
Following 20 years in leadership roles with the Walt Disney Company and Marvel.
Since joining Mattel he has expanded the company's consumer products location based entertainment and publishing businesses.
Most notably.
Josh oversaw the execution of more than 165 consumer products partnerships in retail tie ins related to the Barbie movie.
Our strong and talented leadership team and the entire brand management organization.
We're in an excellent position to continue to execute our strategy to grow our IP, driven toy business and expand our entertainment offerings.
In closing.
Our second quarter financial results were in line with expectations.
But it was much more than that in terms of advancing arent determined strategy.
Following the incredibly successful Barbie movie release.
We look forward to continue capitalizing on the many exciting opportunities to capture the full value of our iconic brands outside the toy aisle.
We expect to achieve our full year guidance.
To outpace the industry and gain market share.
We are well positioned to continue executing our multiyear strategy and create long term shareholder value.
And now I.
I will turn the call over to Anthony.
Okay.
Thanks, Paul.
While comparisons improved from the first quarter, our second quarter financial results were negatively impacted as retailers continued to manage inventory levels compared to the buildup in the prior year and while we gained share we saw some overall industry softness.
Net sales of $1 billion, and $87 million declined 12% or 13% in constant currency.
Paired to the prior year.
Adjusted gross margin of 44, 9% was comparable to the prior year and a significant improvement from the first quarter comparison to the prior year.
Adjusted operating income was $75 million a.
Line of 47 million compared to the prior year due primarily to lower sales.
Adjusted EPS was <unk> 10, compared to 18 cents a year ago.
And adjusted EBITDA of $148 million.
Was $37 million below the prior year.
We continue to expect consumer demand for our metallic product will be positive for the full year and revenue comparisons to improve in the second half as shipping patterns revert to historical trends.
Given our first half performance and outlook for the balance of the year.
We are reiterating our guidance, including for net sales growth in constant currency.
Adjusted EPS and adjusted EBITDA.
Okay.
Turning to gross billings and constant currency first by category.
Overall gross billings declined 12%.
Including a two point negative impact from Russia.
Our Pos in the quarter, which excludes Russia declined by high single digits.
That said, we continued to significantly outpace the industry and gain market share globally.
Dolls grew 9% driven by Disney Princess and Disney frozen.
And the global rollout of Monster high.
Partly offset by Barbie.
POS for dollars declined mid single digits.
Collecting overall declines in the category.
Barbie declined 7% with.
With Pos down low double digits.
Barbie Pos continued to be impacted by the shift of promotions to better align with the theatrical release of the movie.
With the success of the Barbie movie and our robust marketing plans for the second half we have seen improving trends with barbies month to date Pos in July turning positive.
Mitel outperformed the industry and gained over 400 basis points of market share in the adult category year to date.
And Barbie was the number one doll property globally per sarcoma.
Vehicles continued its strong performance.
<unk>, 10% in.
In line with Pos.
Growth was primarily driven by hot wheels die cast vehicles, which continue to perform well.
Year to date.
<unk> gained over 450 basis points of market share in the vehicles category, achieving the highest first half share on record purse or economy.
Infant toddler and preschool declined 29%.
<unk> the impact of retailer inventory movements and overall category weakness.
POS was down low double digits.
Less than gross billings, primarily due to baby gear as we continue to realign the business to more profitable segments.
Mitel outperformed the category.
Gained 60 basis points of market share year to date.
And was the number one toy company globally in the infant toddler preschool category purse or economy.
Challenger categories in aggregate declined 40%.
Due primarily to lower sales in action figures as we lap the theatrical tie ins in the prior year.
POS declined low double digits, but ahead of gross billings.
Regional performance was impacted by retail inventory headwinds in various markets as well as some industry softness in key regions.
North America gross billings declined 18%.
POS declined low double digits.
For the first half first Arcana Mattel gained market share in North America.
EMEA declined 8% refer.
Reflecting a negative eight percentage point impact from Russia.
POS excluding Russia increased high single digits.
Latin America grew 3%.
Pos comparable to the prior year.
Personal kana Mattel gained market share in Latin America year to date, extending our number one market position.
Asia Pacific increased 7%, driven primarily by growth in China and India.
POS declined low single digits.
As previously discussed retailer inventory levels were elevated heading into 2023.
The position improved in the first quarter and has improved further this quarter.
At the end of the second quarter retailer inventory levels in dollars or below prior year levels by a double digit percentage.
With weeks of supply declining high single digits.
At this point, we believe the retail inventory correction is mostly behind us.
Adjusted gross margin of 44, 9% in the quarter was comparable to the prior year.
There were several puts and takes to this performance on.
On the positive side.
Rice increases primarily the carryover benefit from 2022 actions contributed 170 basis points.
Savings from the optimizing for growth program had a positive impact of 150 basis points.
And foreign exchange had a positive benefit of 90 basis points.
These positive factors were offset by cost inflation, while continuing to moderate had a 140 basis point impact.
Fixed cost absorption of 100 basis points associated with lower volumes.
Inventory management costs, primarily closeout sales and obsolescence of 90 basis points.
Mix and other factors of 80 basis points.
Moving down the P&L advertising expenses of $90 million were comparable to the prior year.
And up 100 basis points as a percentage of net sales.
Looking ahead, we are planning for increased advertising spend in the second half.
Adjusted SG&A declined 6% to $324 million, primarily driven by our cost management efforts and savings from our optimizing for growth program.
Adjusted operating income was $75 million compared to $121 million a year ago.
The $47 million decline was due to lower sales, partly offset by lower adjusted SG&A.
Adjusted EBITDA declined by $37 million to 148 million impacted by the same factors.
On a year to date basis cash from operations, reflecting seasonality of the business was a use of $326 million.
<unk> to a use of $425 million in the prior year.
The $99 million improvement was primarily driven by improved working capital performance.
Similarly inventories.
Partly offset by lower net income.
Capital expenditures were $73 million compared to $79 million a year ago.
And free cash flow was a use of $399 million.
Compared to $503 million in the prior year.
On a trailing 12 month basis, we generated $361 million and free cash flow.
Compared to $147 million in the prior year.
An increase of $214 million.
The increase was primarily driven by cash from operations.
Benefiting from improved working capital performance.
Offset by higher capital expenditures supporting recent capacity additions.
We have utilized a portion of our free cash flow to repurchase shares in.
In the first half, we repurchased $50 million of our shares and look to continue repurchases in the second half.
Taking a look at the balance sheet.
We finished the quarter with a cash balance of $300 million.
Compared to $275 million in the prior year.
The increase reflects the free cash flow generated over the trailing 12 months, mostly offset by the use of cash to reduce debt and repurchase shares.
Total debt declined to $2 billion $328 million from $2 billion $576 million last year, reflecting the repayment of $250 million of debt in the fourth quarter last year.
Accounts receivable declined by $98 million to 891 million broadly in line with the decline in sales.
Okay.
We continue to make good progress in reducing owned inventories.
Inventory was $972 million compared to $1.178 billion in the prior year.
A reduction of $206 million.
Looking ahead.
We are well positioned to achieve our targeted inventory reductions in 2023.
Which will contribute to free cash flow generation.
Our leverage ratio increased to three one times at the end of the second quarter compared to two three times a year ago. The.
The increase is primarily due to the timing of our quarterly results. We expect to end 2023 with a leverage ratio of approximately two five times.
We generated $24 million of savings in the quarter as we continue to execute the optimizing for growth program launched in 2021.
We remain on track to achieve our program savings goal of $300 million by 2023.
Total estimated cash expenditures to implement the program are expected to be $155 million to $185 million.
We are reiterating our full year 2023 guidance consistent with our first quarter earnings call.
This includes our expectation for net sales to be comparable to last year in constant currency.
Adjusted EPS in the range of $1 10 to $1 20.
Adjusted EBITDA of $900 million to $950 million.
For free cash flow to exceed $400 million.
We continue to expect growth in the dolls and vehicles categories.
Offset by declines in infant toddler, and preschool and in our challenger categories in aggregate.
Or our power brands, we expect Barbie and hot wheels to grow and for Fisher price to decline.
At current spot rates, we expect foreign exchange translation will have a positive impact of approximately two percentage points on 2023 net sales.
In terms of phasing and with the retailer inventory correction, mostly behind us.
We expect gross billings to return to historical trends.
With two thirds of annual shipments in the second half.
This will result in an accelerated growth rate, particularly.
Particularly in Q4 as we wrap in a typical retailer inventory decline in the prior year.
We are operating in a challenging macroeconomic environment with higher volatility that may impact consumer demand.
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 <unk> second quarter performance and first half was in line with expectations.
And we believe we are well positioned to achieve our full year guidance the.
The balance sheet is strong and business fundamentals are sound.
Retailer inventories are well positioned and we look forward to meeting consumer demand for our product.
As we enter the second half of the year and the all important holiday season.
And now I will turn it over to the operator.
Thank you.
As a reminder, if he would like to ask a question press star followed by the number one on your telephone keypad.
Your first question today comes from the line of Eric Handler with Ross Your line is open.
Good afternoon. Thank you for the question.
So in looking at Barbie and trying to sort of figure out the growth trajectory for this year I wondered if you could talk about maybe give us some directional expectations in how much of the growth is from the toy aisle. How much is increased licensing and then maybe.
Give us a hint on the <unk>.
Will the economics.
Yes.
I'll start it's Richard.
Clearly on the Barbie front.
We are incredibly pleased with the Barbie.
Brand performance I mean, the success of the Barbie movie milestone moment for Mattel.
It really is a showcase for the cultural resonance of the brand.
And as we've seen the success is far beyond the film.
We've seen Pos impacted on our toy business and our consumer product partner business, which has really begun to accelerate meaningfully.
We all see the world is playing with part D. Whether it's our toy and fashion accessories or content I mean, theres no doubt that the brand has reached a new level of cultural relevance.
And to date have been extraordinary with a movie soundtrack TV shows.
We've announced over 165 different consumer product partnerships and live experiences.
So all in all it has been just a tremendous moment for the brand and our guidance includes expectations for significant growth for Barbie in the second half and to be positive for the full year, certainly with the Halo effect of the movie and its economics benefiting Mattel over the next several quarters and years and ultimately.
We've never been more confident in Barbie and our Dallas portfolio of future in both the back half and certainly years, yes.
And beyond.
Okay, great and by the way Richard Congratulations well deserved and good luck to you.
Hey, Don maybe you could talk a little bit about the big picture for you.
What's next for the movie business the success of Barbie make it easier to get other films that have been in the pipeline, maybe grant green lit and.
Starting to move forward with I don't know I have no idea how far along scripts are or where they are in the process, but maybe you could talk a little about how to think about that.
Strike issues notwithstanding.
Yes so.
Let's start by saying that from the beginning this was not just about making a movie this was about creating a cultural events.
And leverage our brands in a way that we've never done before.
What we saw in this movie with this project and the way the way the Barbie movie was released and received in the marketplace.
It was really a showcase.
The cultural resonance of our brands.
The way we work.
Attract and collaborate with top talent.
Our marketing and demand creation capabilities to create effectively became a cultural phenomenon. So this is not just about releasing a movie about really executing our strategy at the highest level.
You've been following us for a while this has been the strategy. This is what we were aiming to achieve.
And it's great to see.
You see it playing out in that way.
In real time.
We we're not saying that every new movie would achieve the same level of success, but we absolutely plan to execute the same strategy. The same approach the same methodology and collaborating with top talent and inspiring in amplifying and trusting and promoting.
Top talent, and then bringing our marketing machine and demand creative capabilities to create special iconic moments and culture and yes. There is momentum right now overall.
Not just for.
Bobby.
The brand, but for other brands.
Of course, given on Barbie.
This is not just about one movie the goal was to create to build a film franchise and continue to extend the brand in more ways and success breeds success. We believe we're in a very good place and hope to achieve more with Bob in other brands.
Thank you very much.
Your next question comes from the line of Linda Bolton Weiser with D. A Davidson.
Your line is open.
Yes, hi, so I'm just curious in terms of.
This year needing to yeah, the retailers needing to reduce inventory did that affect the original plans for how big of a product line for Barbie related to the movie that you actually shipped into retail and what was that.
Will that affected by the macro situation or narrow versus original plan. Thanks.
No, they're really two independent issues.
Original in our current guidance, we're anticipating Matt.
Macro retail inventory impact of three to four percentage point that continues to be our expectation the movie toy line.
Separate from that and it's going very well.
Okay.
Can I just ask about it.
When you gave the shipment in the Pos data for the outside the U S.
Latin America and Asia.
Like the shipment growth exceeded the pls growth. So I'm just curious is that the retailers actually bill rebuilding inventory or should we be concerned because the pls wasn't stronger in those markets. Thanks.
Yes, we feel good about the performance internationally.
And I think in both Latin America, and Asia Pacific They didn't start with the retailer inventory situations at the other markets did so that we didn't expect to see that divergence right that we are seeing more in North America, and EMEA, where most of that Tori correction actually has occurred and sitting here at the end of Q2.
We believe that the inventory correction is now mostly behind us.
And this will bode well as we get into the second half with the expectation.
I will go back to those historical trends of two thirds of gross billings happening in the second half and that will certainly support an accelerated growth rate for us.
H two.
Yeah.
Okay, and if I could just sneak in one more.
So in terms of the Barbie movie.
I think you said that in a couple of quarters or something if the box office was really bad you would share in the economics that we might actually see it affect your earnings in a positive way.
So I guess why given the success of the backstop, that's why would that not be something that could make you raise your guidance for the year is it just not material enough.
Yes, so in terms of the guidance and as stated the second quarter results were in line with company expectations.
Reiterating our guidance for net sales in constant currency to be comparable to 2022 and as I mentioned. This included the retail inventory headwind of 3% to four point and if you break down our guidance it implies significant growth in the second half, including for Barbie, which we expect to be positive.
For the full year.
Said in the context of our overall portfolio some industry softness we saw in Q2 and given its still early in the year. We've got two thirds of our sales still to go.
Maintaining our guidance.
That said, we're off to a good start in Q3.
Q3 quarter to date.
POS for the total company is now positive as well as for Barbie and we've continued to outpace the industry and to gain market share.
Okay, and let me flip and congratulations to Richard Good luck.
Thank you and that very much.
Okay.
Your next question comes from the line of Stephen laws to check with Goldman Sachs.
Your line is open.
Hey, great. Thank you for some Barbie in on I was wondering if the success of the Barbie movie. This past month has changed the way you look at capital allocation at all are there opportunities that you think makes more sense today, perhaps committing more capital towards future media productions are acquiring other forms of IP that you think make more sense today.
And they may have a few months ago.
Okay. At this point, we still are.
<unk> being an amplifying the initial rollout of the movie it's too early to too.
Comment on further plans, we're not changing strategy in the near term, but you know as.
As we continue to strengthen our balance sheet and drive more cash and see a significant increase in cash flow.
We continue to look for ways to.
Two.
Breast inorganic growth always in the interest of our shareholders. So whatever we do would be the most prudent.
And impactful way risk adjusted straw.
Strategy two <unk>.
If I return for our shareholders.
Yeah.
Got it and then maybe one for Anthony you called out overall industry softness in your prepared remarks, I was hoping you can maybe unpack that a little bit more for us what areas of the retail market are you seeing the most softness and.
Looking ahead I'm curious if theres anything youre hearing specifically from your retail partners. So that gives you confidence.
In achieving your topline guidance for the year any commentary around that would be helpful.
Yes, so as we've said we are seeing some industry softness we believe that consumers are deferring some of their current purchases and intend to spend more in.
In the second half in the holiday season, and that's why we're calling for a positive holiday season with the inventory correction now behind US we are working closely with our retailers to meet the demand the anticipated pay the demand for our product in the second half, though we think we're in a very good.
<unk> and look forward to the holiday season.
Great. Thank you.
Your next question.
Your next question comes from the line of Jason Haas with Bank of America. Your line is open.
Hey, good afternoon, and thanks for taking my questions. It sounds like there is an incremental two I think you called out a two percentage point benefit from FX.
So I guess my question is why not raise the EPS guidance on the back of that is there anything that's incremental that's been a pressure EPS that wasn't contemplated in the guidance before.
Sure look inside of our growth margin Theyre always kind of puts and takes we had.
Already anticipated some uplift from foreign exchange now, where we're quantifying quantifying it for you that based on current exchange rates at the two point positive to the.
Top line, but there are other puts and takes and at this point, we are reiterating the guidance, which is for 47% on the year and given our first half that does imply significant growth margin in the second half, which will come from a number of factors continued savings.
We are optimizing for growth program the benefit of the topline.
We're wrapping some onetime inventory management costs in Q4.
Last year.
Those all kind of factored in so we feel good about.
Where we are in the second half.
That's great are you able to give any color on what the cadence of revenue should look like between <unk> and <unk> will those also follow a normal seasonality.
Yes, I think youll see more of an acceleration in Q4 as we wrap the atypical inventory decline that happened in the fourth quarter of last year.
Great. Thank you and if I could squeeze one more in just on the on the Barbie movie. It sounds like things are off to a really good start.
Theres always this big question around this movie just because it is geared towards an older audience.
The question was around how well the toy sales would do alongside it. So I know it's early but is your initial.
Initial read that you are seeing is incremental toy sales alongside the movie and then how about from the retailers are they seeing the success of the movie at the box office and are they increasing their orders for Barbie at this point.
Yes.
Initial.
Pickup in and movie related product has been selling out very fast we've said that before.
In terms of the actual toy brands and over 165 with the partnerships that we've had so we've seen the <unk>.
Very strong strong success of that.
We haven't commented yet on Barbie.
Classic toys, which is what is factored into our full year guidance, but all in all the.
We're clearly seeing a.
The effect of the movie, but important to say that.
This is not just about the quarter or about the year. This is about long term franchise management and we absolutely expect the.
To see continued momentum with the brand.
On the back of such a strong.
Stroke is such a strong initial release and what is interesting to note.
Is that.
With this move where we're seeing the <unk>.
A real expansion in fan base.
More mail order.
Against that go to the theater.
We're seeing very strong performance internationally.
This is important to say because there was some commentary.
Before the movie released that people thought it would be more successful domestically in the U S. But we're actually seeing in spite of.
The success in the U S. We're seeing a very strong performance internationally and this is before Japan, <unk> been released which will happen in August so.
Within the movie store there are some.
Very important indications about the strength of the brand.
The pickup in the continued expansion of.
Of the fan base and audience overall.
Hi.
That's great to hear congratulations on the success you've been having.
Thank you.
Your next question comes from the line of Arpin Kocharyan with UBS. Your line is open.
Hi. Thank you this is our opinion on.
This is probably a question for you.
You are approaching peak production period I believe that.
Right around August .
What goes into that thinking in terms of upside and downside to your plants buyers seem to be very cautious on inventory at the same time. They are in some cases running below target in stock levels and toy yet not taking inventory do you see a risk that some of that cautious outlook that the retailer.
<unk>.
The potential to be reflected in their purchase orders how do you think about that.
Yes. Thanks.
We continue to work collaboratively with our retail partners. This is what we do.
Every year. This is what we do as we head towards.
The production, Susan and all important holiday period, we continue to monitor the market.
We receive input and data points from retailers all over the world from our own people on the ground in every major market and look to continue to adjust and and reflect that in how we map.
Map, our plans going forward.
Overall, the fundamentals are strong.
Portfolio.
He is very well balanced we're seeing.
Strength in not just in Bobby but we've talked about hot wheels, a lot what what has us on track to achieve its sixth record year.
We have some important incremental drivers that we haven't had in past years, including Disney Princess and frozen.
The business wish.
Those monster high is.
Rolling out globally.
Talked a lot about the Barbie movie and that in itself will have.
Its own <unk>.
On potential momentum.
Expected momentum and of course.
The continued strength across the portfolio.
We're not done.
We look to continue to drive the business going forward, we just announced another partnership with Warner Brothers too.
Grow our third party licensing business as well so.
Expect to continue to.
Outpace the industry gain market share and achieve our full.
Our full year guidance.
Thank you very helpful. And then would you be able to size how meaningful could consume our product partnership Steve for your profitability overtime. I think you said more than 60 partnerships for Barbie franchise alone.
Should we think about the opportunity over time, because obviously that can be a very high margin business for you.
Right you said you try it it's a very high margin business we.
We continue to look at the Barbie movie as a template we think of it as a template in terms of our ability to execute.
Such comprehensive program.
Yes.
Consumer product partnerships and what is interesting and one of the takeaways.
The success of the Barbie movie is our ability to execute our demand creation expertise outside the toy aisle.
As a company our focus today has been doing that.
Within the toy side of the business and now we were able to.
Take.
Bring that expertise into amplifying the movie and turning it into a cultural events of course, it starts with having a.
A great movie.
Reflecting the credit vision and must master for.
Execution of a great picture by Greta Gerwig, having.
Superstar cast with Margaret Robbie and Ryan Gosling, having an amazing.
Soundtrack that is now becoming an album and an experienced in and of itself.
Yeah.
Produced by Mark Ronson, but and of course Warner brothers in terms of their incredible marketing campaign and everything they are brought to the table, but it is also very much about our expertise in amplifying all of that and turning it into a control event, then continuing to drive business.
This important business outside of our core.
<unk> expertise.
Okay. Thank you and just really quickly for Fisher price.
Firstly on the underlying reasons.
I understand that so much pressure how much of that decline instead of cleanup to shift to more profitable skus and get out of for example baby care.
Quantify that quickly.
And while it's Richard.
First off <unk> outperformed the category, we gained 60 points basis points of market share year to date.
We are the number one toy company globally in the category of infant toddler preschool.
We did decline in the second quarter, but it really reflects the impact of retailer inventory movements and the overall category weakness.
We continue to expect trends to improve as we progressed through 'twenty three we're supporting it by imagine acts expanding its core audience with the release of Trolls later this year, which we're really excited about we've got continued expansion a little people, that's gaining more and more momentum with our core brands Barbie and hot wheels, which had.
Extended into that property.
<unk> got new strong innovation that is planned for the back half with great demand creation to support the brand. So theres a lot in the pipeline for Fisher price of course, we believe in the brand its positioning in the market the opportunity to grow will continue to optimize the category that we're in both in revenue.
And most importantly profitability to extend our leadership position.
Thank you. Thank you both and congratulations on Barbie succession, all the best to Richard.
Thank you <unk>.
Thank you.
Your next.
Question comes from the line of Fred Wightman with Wolfe Research. Your line is open.
Hey, guys. Thanks for the question I just wanted to.
Ask about the inventory correction timeline it seems like that got pushed out a little bit versus what you guys were expecting last quarter. So wondering what if anything changed and then just how we should rationalize that with the gross margin impact that we saw I mean, it was a pretty big sequential change in terms of what you called out that was tied to inventory closeouts. So how does that all work.
I would say the retail inventory situation is unfolding as we expected right. We made some progress in Q1, we made further progress in Q2, we ended the quarter.
With retail inventory level down double digit percent in dollars and a high single digit percent as.
As measured in weeks of supply.
And we certainly had less inventory management costs in Q2 than we did in Q1, so as we sit here today, we would say that.
The correction is mostly behind us.
And what that means looking ahead at gross billings are expected to return to normal patterns with two thirds in the second half.
Should see an accelerated growth rate, particularly in Q4.
As we wrap last year's movement.
Okay, and then there was a comment about some of the Pos impact in <unk> as far as consumer shifting spending to the holiday what exactly has been informing that view is it tied to survey work or what are you sort of basing that on.
Yeah, it's based on our own internal research that we do every year in terms of talking to consumers.
To understand how they are thinking weather.
Making purchases are not making purchases.
Yeah.
But I would also say.
I would also add to that I think the economic data also supports what we're <unk>.
Expecting in terms of.
Consumer expect consumer spending is expected to increase in the second half unemployment remains low.
Inflation seems to be subsiding and consumer sentiment seems to be on the rise. If you look at a number of indices as well.
Makes sense all the best Richard.
Thank you so much.
Your last question today comes from the line of drew Crum with Stifel.
Your line is open.
Okay. Thanks, Thanks for sneaking me in and Richard Best of luck and congrats.
My first question is how does the current Hollywood labor disputes impact your business this year.
Or is this something that if it lingers as more of a headwind in 2024.
Yes.
Net.
It is delaying some projects that are in development, but we've made significant progress before the strike and we expect to continue to make progress after the strike.
We are watching this space and we'll manage accordingly.
Okay.
And I think you responded a question concerning the entertainment strategy in light of the success you've had with Barbie to date I wanted to drill down maybe a little bit further on that maybe it's a little bit premature to be asking this but given the film hasn't been released for more than a week what are your thoughts around what's next for Barbie theatrical.
Do you intend to sequel film do you can you do spin offs can you improve your participation or economics in that on the next project.
What's next for Barbie.
We havent announced anything and it's probably a bit early to talk about <unk>, but.
Obviously with the success of the film with a phenomenal.
Released less than a week already.
So $400 million of the box office, and the very strong momentum and as I mentioned repeat viewing.
Broad demographics and very strong.
Global performance.
That would invite more opportunities.
We operate in an industry where.
Everyone is looking for this moment for this brands for this cultural events and they don't they happen, but they don't happen often so we're very proud to be.
The owners of such an important.
Iconic <unk>.
Rand.
We should remember that Barbie has been already successful before the movie.
Very soon the number one brand for two years in a row.
Mobile it.
And last year was number two only behind pokemon, but continuing.
Continuing to show strength in the on very strong.
So are we.
We expect the brand to continue to grow we expect to have more opportunities in content and this is not just film, but also TV and other other areas, where we continue to engage and engage.
People, who.
Have an emotional connection with the brand.
And I.
Just wanted to.
Make the point that the biggest shift in our strategy and in our DNA was to realize that people who buy our product.
Not just consumers they are our fans and once you have an audience you.
There are more opportunities open up to engage with your fans in many ways and continue to create value.
From that engagement, so expect more too early to talk about <unk>, specifically, but we absolutely believe that there are more opportunities to continue to extend the Barbie brand.
Got it thanks for that.
Right.
This concludes our question and answers for today and now I'll turn the call back to <unk> for closing remarks.
Thank you operator, and thank you everyone again for your questions or was a good discussion I would like to close by congratulating the broadband Mattel films teams.
And the entire global organization.
On the milestone moment, we achieved together in bringing <unk> to life for the first time on the big screen in live action and advanced our entertainment strategy.
Congratulation again to lesser Mcknight.
Josh Silverman increased down on their well deserved promotions, we look forward to their continued strong contributions to Mattel.
And of course that thank you Richard.
For helping.
To make Mattel the company it is today.
You will be missed your friend you a personal friend to me your colleague would always their friends of course.
Going to Miss you, but we wish you all the best.
In the new role and thank you for everything you've done.
And now I'll turn the call back to <unk>.
David.
Thank you <unk> and thank you everyone for joining today's call.
A replay of this call will be available via webcast beginning at 830 PM Eastern time today.
Webcast link can be found in the events and presentations section of our Investor section of our corporate website corporate Mattel Dot com.
Thank you for participating in today's call.
This concludes today's conference call you may now disconnect.
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