Q3 2024 Mattel Inc Earnings Call
Thank you for standing by and welcome to the Mattel Inc. Third quarter 2024 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 prestige star one.
I'd now like to turn the call over to Jennifer <unk>, Vice President of Investor Relations you may begin.
Jennifer: Thank you operator, and good afternoon, everyone. Joining me today are in non cries, Mattel's, Chairman and Chief Executive Officer, and Anthony Disilvestro, Mattel's Chief Financial Officer. As you know this afternoon, we reported Mattel's third quarter 2024 financial results.
Jennifer: We'll begin today's call with the non and Anthony providing commentary on our results after which we will provide some time for questions.
Today's discussion earnings release, and slide presentation may reference certain non-GAAP financial measures and key performance indicators, which are defined in the slide presentation and earnings release appendices.
Jennifer: Please note that gross billings figures referenced on this call will be stated in constant currency unless stated otherwise.
Jennifer: Our earnings release slide presentation, and supplemental non-GAAP information can be accessed through the investors section of our corporate website corporate Mattel dot com and the information required by regulation G regarding non-GAAP financial measures as well as information regarding our key performance indicators is included in.
Jennifer: Those documents.
Jennifer: The preliminary financial results included in the earnings release and slide presentation represents the most current information available to management.
Jennifer: The companys actual results when disclosed in its Form 10-Q may differ 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.
Jennifer: The final results.
Speaker Change: 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.
Speaker Change: 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 in the forward looking statements we.
Speaker Change: We describe some of these uncertainties in the risk factors section of our latest Form 10-K annual report our latest Form 10-Q quarterly report our most recent earnings release and slide presentation and other filings, we make with the SEC from time to time as well as in other public statements Mattel.
Speaker Change: 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 you John.
John: Thank you for joining Mattel's third quarter of 2024 earnings call.
John: This quarter, we continued to execute with our multiyear strategy to grow Mattel's, IP, driven toy business and expand our entertainment offerings.
John: Coming into the quarter, we always knew there would be a tough comp relative to the prior year, which benefited from the success of the Barbie movie.
John: The highlight of the quarter was as we fully offset this comp in our bottom line through strong gross margin performance.
John: Our balance sheet continued to strengthen and free cash flow was up significantly in the trailing 12 months.
John: This is in line with our priorities this year to grow profitability.
John: <unk> gross margin and generate strong cash flow.
John: Looking at key financial metrics compared to the year ago quarter.
John: Net sales declined 4% as reported and 3% in constant currency.
John: Adjusted gross margin increased 210 basis points to 53, 1%.
John: Adjusted EBITDA improved 1% to $584 million.
John: And adjusted EPS grew 6% to $1.14.
Free cash flow in the trailing 12 months improved nearly 50% to $688 million compared to the same period a year ago.
John: Supported by our strong balance sheet, we have now repurchased $268 million of shares through the first nine months of the year and expect to make further share repurchases in line with our capital allocation priorities.
John: Given where we are in the year, we now anticipate our net sales to be comparable to slightly down for the full year, we expect growth in the fourth quarter and are on track to achieve our full year adjusted EBITDA and EPS guidance driven by strong gross margin performance.
John: Looking at third quarter performance by category as compared to the prior year.
John: Dogs gross billings were down as expected with comparisons impacted by the success of the Barbie movie in the year ago quarter.
John: Within the dolls portfolio Monster high continued to grow as we expand the <unk> franchise.
John: Vehicles performance was very strong led by housewares core Backcast innovation in those segments.
John: In adult collector expansions.
John: Hardware is expanding its fan base and we recently announced a multiyear licensing partnership with Formula One that includes a broad range of products and experiences.
John: <unk> is on track for its seventh consecutive record year and is well positioned for long term growth.
John: Infant toddler and preschool declined as we exit certain product lines in baby gear and <unk> in line with our stated strategy.
John: Fisher price grew for the second consecutive quarter driven in part by the early success of the wood line as we expand globally.
John: Challenger categories collectively grew with Ono, achieving its largest quarter on record.
John: As we drive innovation and new forms of play.
John: <unk> total market share declined slightly year to date.
John: Though we gained in dogs vehicles and games.
John: Kind of.
John: Looking ahead, we expect to gain market share in the fourth quarter and full year.
John: We are also making further progress with our entertainment strategy.
John: Here are some recent highlights.
John: And Phil.
The Masters of the Universe live action movie with Amazon MGM Studios are started pre production with a worldwide theatrical release scheduled for June five 2026.
John: The Matchbox live action movie with Sky Dance and Apple original films was granted and we'll start John Cena.
John: And just last week, we announced that a few master live action movie will be co developed with Sony Pictures Entertainment and escape artist.
John: In television.
John: With less race animated series season, two was released on Netflix last month.
John: <unk> ranked as a top 10 TV series in 27 countries across the platform.
John: And Brian as World premiered on Max last week.
John: We relaunched the franchise for a new generation of fans.
John: In digital gaming Martel, one six III, our joint venture with Nat is continue to grow and is expected to exceed $200 million in gross billings this year.
Our 50% interest in the JV contributed $7 million to net income in the quarter and over $18 million year to date.
John: As it relates to the toy industry is continuing to perform better than first anticipated heading into this year.
John: The industry was down a low single digit in the first nine months as compared to the same period in the prior year.
John: And our expectation for it to decline modestly in 2024 is unchanged.
John: Beyond this year, we believe trends will further improve and that the industry will return to growth and continue to grow over the long term.
John: The fundamentals are strong.
Speaker Change: Toys are unimportant part of consumers' lives.
Speaker Change: And retailers prioritize the category as a strategic lever.
Speaker Change: Mattel is well positioned competitively in the fourth quarter.
Speaker Change: With a broad based lineup of innovative product offerings and segment launches.
With a range of play patterns and price points across our portfolio.
Speaker Change: We also have an exciting lineup of product tied to the theatrical movie releases of business won a tool and universal's weekends in November.
Speaker Change: We expect a good holiday season for Mattel.
Speaker Change: With more retail support additional shelf space.
Speaker Change: Greater representation across major holiday catalogs, and increased marketing and promotions as compared to the prior year.
Speaker Change: In closing.
Speaker Change: We continue to execute on our multiyear strategy.
Speaker Change: This year, our prioritizing profitability gross margin expansion and cash generation.
We expect top line growth in the fourth quarter driven by a good holiday season.
Speaker Change: Market share gains and a toyetic theatrical slate.
Speaker Change: Well positioned for long term growth and shareholder value creation.
Speaker Change: And now I will turn the call over to Anthony.
Thanks.
Speaker Change: We achieved another strong quarter of profitability with significant margin gains fully offsetting the impact of wrapping the Barbie movie related benefits in the prior year.
Anthony DiSilvestro: Net sales were $1 84 billion a.
A decline of 4% as reported or 3% in constant currency.
Anthony: The decline was primarily due to the Barbie movie comparison, which benefited the prior year.
Adjusted gross margin reached 53, 1% an increase of 210 basis points benefiting from supply chain improvements and cost savings.
Anthony: Adjusted operating income was comparable at $504 million as the net sales decline was offset by margin improvement.
Anthony: Adjusted EPS increased 6% to $1 14.
Anthony: Benefits from fewer shares outstanding as a result of share repurchases.
Speaker Change: Turning to gross billings and constant currency first by category.
Overall gross billings declined 3% in the quarter, excluding the movie related benefit in Q3 of last year gross billings would have increased modestly.
Speaker Change: POS declined high single digits in the quarter and was down low single digits through the first nine months due primarily to the Barbie related decline in <unk>.
Speaker Change: Golf gross billings declined, 14% and Pos declined low double digits.
Speaker Change: Barbie gross billings declined 17% and Pos declined low double digits.
Speaker Change: Vehicles had an outstanding quarter growing 13%.
Speaker Change: Growth was primarily driven by hot wheels with gains in die cast car and RC and supported by the hot wheels, let's raise the streaming content.
Speaker Change: Matchbox and Disney cars also contributed to growth.
Speaker Change: Vehicles, Pos increased mid single digits.
Speaker Change: Infant toddler and preschool declined 2% due to baby gear empower wheels, as we exit certain product lines in those segments, partly offset by 2% growth in Fisher price.
Speaker Change: Which benefited from wood as we expand distribution to more markets.
Speaker Change: Category Pos declined low double digits overall with Fisher price down mid single digits.
Speaker Change: Challenger categories in aggregate grew 3% the gains category achieved double digit growth driven by Uno.
Speaker Change: The axiom figures business also grew while building sets decline.
Speaker Change: Turning to gross billings by region.
Speaker Change: North America declined 3% due primarily to the Barbie movie related comparison.
Speaker Change: The other power brands, <unk> and Fisher price achieved growth in the quarter.
Speaker Change: POS declined high single digits.
Speaker Change: EMEA declined 6% also impacted by the movie related comparison.
Speaker Change: POS declined high single digits.
Speaker Change: Latin America grew 2% driven by gains in our two largest markets, Mexico and Brazil.
Speaker Change: POS declined high single digits.
Speaker Change: Asia Pacific had a strong quarter growing 8% driven.
Speaker Change: Driven by gains in India and Japan.
Speaker Change: Pos increased low single digits.
Speaker Change: Retail inventory levels ended the quarter down high single digits compared to the prior year and we are well positioned for the holiday season.
Speaker Change: Yeah.
Speaker Change: Adjusted gross margin increased 210 basis points to 53, 1%.
Speaker Change: The improvement was driven by several factors.
Speaker Change: Supply chain efficiencies, including fixed cost absorption added 190 basis points.
Speaker Change: The optimizing for profitable growth program added 80 basis points as we continue to generate cost savings.
Foreign exchange rate movements added 70 basis points and cost deflation contributed 50 basis points.
These gains were partly offset by a negative mix impact of 180 basis points as we wrap the margin accretive benefits associated with the Barbie movie.
Speaker Change: Moving down to P&L advertising expense declined to $19 million or 16% versus the prior year.
Speaker Change: The reduction reflects our strategy to shift advertising to later in the year.
Speaker Change: Adjusted SG&A increased $23 million or 7%.
Speaker Change: Primarily driven by higher compensation expenses.
Speaker Change: We offset by savings from the optimizing for profitable growth program.
Speaker Change: Adjusted operating income was comparable at $504 million.
Speaker Change: With a lower net sales and higher adjusted SG&A offset by adjusted gross margin expansion and lower advertising.
Speaker Change: Adjusted operating income margin for the first nine months of 2024 was 15 point.
Speaker Change: 5%, an expansion of 260 basis points versus the prior year period.
Speaker Change: Adjusted EBITDA in the third quarter increased 1% to $584 million.
Speaker Change: Benefiting from the previously mentioned margin improvement.
Speaker Change: Adjusted EPS was $1 14 compared to $1 eight.
Speaker Change: An increase of 6%.
Speaker Change: The increase benefited from a lower share count, reflecting our continuing share repurchase activity.
Speaker Change: Year to date cash from operations was a use of $62 million.
Speaker Change: Compared to a use of $80 million in the prior year period.
Speaker Change: Capital expenditures increased by $39 million.
Speaker Change: Primarily driven by the acquisition of a property that will serve as our new Global design Center and replace our current leased facility.
Speaker Change: This resulted in free cash flow of a use of $219 million.
Speaker Change: Impaired to a use of $197 million in the prior year.
Speaker Change: On a trailing 12 month basis free cash flow was $688 million.
Speaker Change: An increase of 49% from the prior year period.
The improvement was driven by increased cash from operations, partly offset by higher capital expenditures.
Speaker Change: In line with our capital allocation priorities, we have utilized a portion of free cash flow to repurchase shares during.
Speaker Change: During the first nine months of 2024, we repurchased $268 million of shares and during the trailing 12 month period, we have now repurchased $361 million.
Speaker Change: Turning to the balance sheet.
Speaker Change: We finished the quarter with a cash balance of $724 million, an increase of $268 million versus the prior year.
Speaker Change: The increase reflects the free cash flow generated over the past 12 months.
Speaker Change: Partly offset by the use of cash to repurchase shares.
Speaker Change: Total debt of 235 billion with comparable to last year with no scheduled maturities until 2026.
Accounts receivable declined $94 million due primarily to lower sales.
Speaker Change: Inventory levels remained below the prior year as we ended the quarter at $737 million.
Speaker Change: Down $53 million.
Speaker Change: Our leverage ratio continued to improve compared to the prior year.
Speaker Change: Debt to adjusted EBITDA finished the quarter at two three times.
Speaker Change: Compared to two seven times in the prior year quarter.
Speaker Change: The improvement was driven by the increase in our trailing 12 month adjusted EBITDA.
Speaker Change: We had another quarter of achieving significant cost savings.
Speaker Change: Our optimizing for profitable growth program, which we commenced this year, we generated $23 million of savings in the quarter with 15 million benefiting cost of goods sold and $8 million in SG&A.
Speaker Change: For the nine month period, we achieved $60 million of savings.
Speaker Change: Given the progress to date, we now expect to generate approximately $75 million of savings in 2024.
Exceeding our original target of $60 million and are on track to achieve total program savings of $200 million by 2026.
Speaker Change: As we draw closer to the end of the year, we are updating our guidance for 2024.
Speaker Change: We expect net sales in constant currency to be comparable to slightly down given our year to date results.
Speaker Change: And the outlook for the remainder of the year.
Speaker Change: From a category perspective for the full year, we expect vehicles to grow infant.
Speaker Change: Infant toddler, and preschool and challenger categories to comparable <unk> to decline.
Speaker Change: With respect to the power brands, we expect hot wheels, and Fisher price to grow and Barbie to decline as we wrap the movie benefit.
Speaker Change: This guidance reflects our expectation for topline growth in the fourth quarter as we continue to anticipate a good holiday season.
Speaker Change: Full year 2024, adjusted gross margin is expected to increase to approximately 50% compared to 47, 5% in 2023.
Speaker Change: The improved outlook reflects incremental cost savings and improved supply chain performance.
Advertising is expected to remain relatively stable as a percent of net sales.
Speaker Change: And adjusted SG&A to now increased slightly as a percent of net sales versus 2023.
Speaker Change: We continue to expect adjusted EBITDA to be in the range of $975 million to $1 billion and $25 million and.
Speaker Change: For adjusted EPS to grow by double digits to the range of $1 35 to $1 45.
Speaker Change: The adjusted tax rate is projected to be 21% to 22%.
Speaker Change: Capital expenditures are forecasted to be in the range of $200 million to $225 million, which includes our recent purchase of a global design center to replace the current leased facility.
Speaker Change: Free cash flow is still expected to be approximate $500 million.
We will provide full year 2025 guidance on our 2020 for fourth quarter call.
Speaker Change: 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.
Speaker Change: In closing the highlight of the quarter was achieving meaningful expansion in gross margin and growth in adjusted EPS. Despite a challenging comparison we.
Speaker Change: We generated significant cash flow on a trailing 12 month basis.
Speaker Change: <unk> strengthened our balance sheet and repurchased additional shares.
Speaker Change: We are in a strong position to continue executing our multiyear strategy to grow our IP, driven toy business and expand our entertainment offerings and create long term shareholder value.
Speaker Change: And now I will turn the call over to the operator, and we'll be happy to take your questions.
Speaker Change: Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question simply press Star one again.
Speaker Change: Your first question comes from the line of Arpin Kocharian from UBS. Your line is open.
Arpin Kocharian: Hi, Thanks, so much thanks for taking my question and Ken Welcome can you tell them look forward to working with you.
Could you give a quick sense on the retail environment. There is a lot of concern about macro tariffs the election persistent inflation and generally about the consumer instead of holding up into Q4, what gives you confidence from what you said I guess reiterate growth guidance for Q4, and then I have a quick follow up.
Okay.
Sure.
<unk>.
From where we sit the toy industry continues to perform better than initially expected at the start of the year.
We expect growth in our business in the fourth quarter and see.
Arpin Kocharian: Demand for our product we also.
Arpin Kocharian: Seeing different studies one that is interesting is the national retail Federation that recently said that they expect holiday season.
Holiday sales to grow between two and a half to three 5%.
Arpin Kocharian: Which is generally in line with other external forecast that we're seeing our own internal research shows that more consumer plan to shelf with toys in the fourth quarter and that the majority of toy shoppers are looking for evergreen well known brands, which bodes well from a tail.
Arpin Kocharian: So.
Arpin Kocharian: All in all we do expect a good holiday season, we expect to grow shares.
Arpin Kocharian: Gross sales gain market share and continue to.
Arpin Kocharian: Execute our strategy.
Speaker Change: Wonderful thank you.
Speaker Change: This is maybe for Anthony Anthony when you look at the implied margin for Q4. It is closer to if my math is right 47, nine something like that closer to 48%, but comparable toughest in margin in Q3, I think Greg given that Bobby proceeds if im not mistaken then why are margins a bit more pressured in Q4, I think you sort of being conservative.
Given so much of retail is still ahead of you or what is driving this margin outlook for Q4. Thank you.
Speaker Change: Yes sure.
As we said, we're guiding to 30% on a full year, that's up 250 basis point and it does imply that year to go down.
Speaker Change: Lately as a couple of reasons for that one is and we've seen cost deflation year to date, we expect to see a little bit of cost inflation in the fourth quarter and we're also continuing to have some of the movie wrap about one third of last year's benefit occurred in the fourth quarter. So we have a little bit of rep to go to those are the two drivers.
The other driver in terms of operating income margin really reflects our strategy to ship average surprising.
Speaker Change: The fourth quarter on a year to date basis, our advertising its actually down $40 million and we're guiding for it to be comparable as a percent of net sales, which implies a pretty significant increase in advertising in Q4, which is impacting the margin as well.
Speaker Change: That's really helpful. Thank you.
Your next question comes from the line of Megan Alexander from Morgan Stanley. Your line is open.
Megan Alexander: Hi, Thanks, Good evening, thanks for taking our questions I wanted to start Anthony I think you said Pos was down high single digits in the quarter gross billings in constant currency were down three and I think you said what it actually increased modestly if you take out some of the movie related impact last year, which I think.
Megan Alexander: I know that wasn't toy, but correct me if I'm wrong and retail inventories were also down high single digits, which is I think the same.
Megan Alexander: Same as they were last quarter. So can you just help us understand how that all works together.
Megan Alexander: The Pls down how is that high singles gross billing is down three would imply that you over shipped.
Megan Alexander: Last in the third quarter.
Speaker Change: Yes, so look there.
Typically some volatility in our retail inventory movements in the correlation between Pos and growth is not a.
Speaker Change: Exact sciences, I mean, what I would point you to is on a year to date basis both.
Speaker Change: <unk> billings and Pos are down filing in.
Speaker Change: Fairly aligned I think also importantly, as we look at the retailer inventory positions at the end of Q3. They are down high single digits versus last year. There are very good quality and we believe we are well positioned as we head into the holiday season.
Speaker Change: Okay.
Speaker Change: That's helpful. And then just on the on the topline guide the change now you're saying comparable to slightly down I don't think you changed your expectation for the industry and you said you still expect to gain share so.
Speaker Change: Can you just help us understand what changed did you change your market share total expectation or do you no longer expect to ship ahead of Pls and I guess, if that's the case does do you expect pls to be positive in the fourth quarter.
Speaker Change: Yes, I would say there is no specific drivers to call out is based on an assessment of our results year to date and our outlook for the remainder of the year and importantly to note. We do expect a good holiday season, and we do expect Pos to grow in the fourth quarter, we expect our <unk>.
Speaker Change: Sales to be up in the fourth quarter outpaced the industry and gain share not only for the fourth quarter, but for the full year as well.
Speaker Change: Okay. Thank you so much.
Speaker Change: Sure.
Speaker Change: Your next question comes from the line of drew Crum from Stifel. Your line is open.
Speaker Change: Okay. Thanks, Hey, guys good afternoon.
Speaker Change: You've continued to endorse industry growth and 25 can you remind us.
Speaker Change: Share with us what the source of optimism optimism is what are the factors you see driving <unk>.
Speaker Change: Rebound for the market next year, and then I have a follow up.
Speaker Change: Thanks drew.
Speaker Change: Well first of all the toy industry is a growth industry.
Speaker Change: And it has grown in 23 of the past 25 years.
It continues to perform better than initially expected at the start of the year, Although we still expect it to decline modestly.
The full year.
Beyond this year, we do believe as we said before that trends will improve and that the industry will return to growth and continue to grow over the long term.
Speaker Change: We still see strong industry fundamentals in that Tories are an important part of consumers' lives retailers prioritize the category as a strategic lever probably shoppers drive traffic to the store they spend more time in the store and they have typically a bigger basket.
Speaker Change: Oh.
Speaker Change: Passenger that is worth more overtime.
Speaker Change: <unk> has been growing and outpacing decline in birth rates.
Speaker Change: The industry growth.
Speaker Change: It has been driven if you look at the big the top.
Key markets has been driven by both pricing and units.
Speaker Change: And we're also seeing positive drivers for the industry overall in that.
Speaker Change: Theatrical or Toyetic theatrical movies are coming online you are seeing a fast growing adult segment.
Speaker Change: Not just collector, but adult buying toys and all in all it's.
Speaker Change: It's Ben.
Speaker Change: Both positive healthy fundamentals.
Speaker Change: Then all of that we believe that we are very well positioned to capitalize on the future industry growth. We continued to invest in organic growth focus on great product innovation supply chain commercial capabilities.
Speaker Change: Demand creation capabilities and expect to outpace the industry and continue to gain share.
Speaker Change: Got it thanks, and then maybe for Anthony.
Speaker Change: We've heard that one of your major retail partners has changed that or payment terms and I'm just curious with that in any way.
Shifts working capital and put to use your free cash flow guidance at risk for the year. I mean, you are reiterating it today, but just want to understand if that in any way impacts working capital.
Speaker Change: No no impact on us as we talked about we continue to guide to $500 million are free.
Speaker Change: Free cash flow, despite a little bit of uptick in their capital expenditures.
Speaker Change: Got it okay. Thanks, guys.
Speaker Change: Thank you drew.
Our next question comes from the line of Stephen <unk> from Goldman Sachs. Your line is open.
Hey, great. Good afternoon. Thanks for taking the questions maybe first for Anthony on Capex, you called out the acquisition of the New Global Design Center could you talk a little bit more about the sizing of the investment youre, making there and any longer term related capex youre.
Speaker Change: You are expecting from the build and then.
Speaker Change: For for longer term Capex is the 200 to 225, perhaps a good proxy to think about that going forward. Thanks.
Speaker Change: Yes, so as we said we purchased a building here in El <unk> that will serve as our global design center going forward. It does replace an existing lease facility in El Segundo.
Speaker Change: As well.
Speaker Change: And that's the reason for the Capex guide going up a little bit, although it's not going up by the fall.
Amount as we manage the rest of the spend will have a little bit of build out related to that for next year and as we get closer to next year. We can give you an update on what we expect for next year.
Speaker Change: Got it and then maybe just a broader question on capital allocation and share repurchases you bought back $68 million in the quarter, which is there.
Speaker Change: A bit slower than what we've seen over the first two quarters of the year could you maybe just talk a little bit about the pace of share repurchases going forward, maybe the opportunity to ramp.
Speaker Change: As we look into the back half of the year and maybe how you're balancing that versus other capital allocation priorities heading into 'twenty five thank you.
Speaker Change: Yes, what I would say is that we've been very active on the share repurchase front end.
Speaker Change: $68 million in Q3, bringing the year to date total to $268 million on a trailing 12 month basis, we're now at about $360 million and since we resumed share repurchases last year. We've now bought back $471 million of shares in now in terms of the pace, we believe it's appropriate and.
Speaker Change: Really consistent with our stated capital allocation priorities and looking ahead, we would expect we will continue to buyback stock in line with those capital allocation priorities and fund that with free cash flow.
Speaker Change: Got it thanks Anthony.
Speaker Change: Your next question comes from the line of Jim Chartier from <unk> Crespi Hardt. Your line is open.
Jim Chartier: Alright, Thanks for taking my question.
Jim Chartier: Can you just talk about your digital gaming initiatives longer term, what's kind of a planned launch schedule with <unk> 63 last quarter, you talked about developing some casual games internally, what's the timeframe for launch in the first game there and then any other initiatives you might have.
Jim Chartier: Thanks, Jim.
<unk> said before our goal.
Speaker Change: When it comes to digital gaming is to extend the physical play to the virtual world right.
Speaker Change: By creating digital games and experiences that drive sustained engagement for fans of all ages.
Speaker Change: Our strategy has.
Speaker Change: The three components licensing our joint venture with that is that we call on with net is and so publishing which we recently started to talk about we continue to make progress on the licensing front with more and more games, where we work with third parties.
Speaker Change: <unk> III is expected to exceed $200 million of gross billings this year with very attractive margins.
Speaker Change: This is so far on the back of only three games released.
Speaker Change: Until now.
When it comes to sell publishing.
Speaker Change: This is what we see asymmetric opportunities for us in the mobile space mobile gaming space, given the strength of our brands and we are starting to ramp this strategy.
Speaker Change: Working already on the first game with a very strong studio and we will be happy to share more as we progress the strategy, but we see that with the C. Our digital gaming strategy as an important growth driver both for top line and profitability.
Speaker Change: Great and then.
Speaker Change: How should we think about.
Speaker Change: SG&A for the year.
Speaker Change: As the compensation growth driven by just merit raises an inflation or are there places, where you're adding employees and investing.
Speaker Change: Sure.
Speaker Change: Turning to the full year guidance, we do expect SG&A as a percent of sales.
Speaker Change: Be up slightly.
Speaker Change: A primary driver of that is investment decisions that we've made particularly to build capabilities in areas like digital gaming. We're also investing some of our information technology, but those would be the two primary drivers coming through.
Speaker Change: Great. Thank you.
Speaker Change: Yeah.
Speaker Change: Oh.
Speaker Change: Your next question comes from the line of Christopher <unk> from Jpmorgan. Your line is open.
Thanks, guys. Good evening, so I'll take a shot at the sort of change in the top line outlook. So do you think about the subtle change to the the.
Speaker Change: The guide for the year on sales gets to what degree was that what you've seen year to date versus taking a different view on how you thought about the fourth quarter.
Speaker Change: Prior to today.
Speaker Change: Yes, so as we said I mean, we continue to expect growth in the four quarter of it is a critical quarter for US we are well positioned in terms of the demand creation activities and as we said we expect to grow the top line.
Speaker Change: It's probably more of a function of looking at our year to date performance, that's causing us to be a little bit cautious in terms of topline, but we feel really good.
Speaker Change: As we head into the fourth quarter in terms of more innovative product more advertising more shelf space more retailer support all of those things give us confidence.
Speaker Change: For a good holiday.
Speaker Change: And ahead of us.
Speaker Change: Got it I appreciate that.
Speaker Change: My follow up question is on tariffs, it's pretty popular topic right now with the election right in front of US can you just help us remind us how you think about your tariff exposure from a manufacturing base in China versus what your sale what your sales are in.
Speaker Change: Sorry, what your sales are in the United States and think about what your experience was last time understanding and I don't think less for ever went in but how are you thinking about that today versus what it was prior thank you.
Speaker Change: Yeah.
Speaker Change: Well, we're always looking at.
Speaker Change: A different changes, whether it's government policy or regulatory.
Speaker Change: Dynamics that could impact our business and our job is to design, a flexible and responsive organization.
Speaker Change: That can react to changing market conditions and this is exactly what we've been doing over the last few years.
Speaker Change: <unk> today is a competitive advantage for Mattel is geographically diversified we make product in.
Speaker Change: In six different countries and we continue to ensure that we have flexibility in our system to respond to.
Speaker Change: Two changes in the marketplace.
Speaker Change: So I guess just in terms of like how much do you actually source out of China and.
Speaker Change: And how much of that is directed at U S sales.
Speaker Change: Yeah.
Speaker Change: We.
We make a product that is made in China is approximately.
Speaker Change: 50% of our manufacturing this is compared to an industry average of about.
Of about <unk>.
Speaker Change: <unk>, 80% to 85%.
Speaker Change: These numbers are as of the.
The end of 2023, we also talked about the fact that we continue to further diversify our manufacturing footprint and.
Speaker Change: Intent.
To continue to adjust for.
Speaker Change: Sure.
Speaker Change: For more.
Speaker Change: More flexibility in the system.
Speaker Change: <unk>.
Speaker Change: Product heading into the U S is just around 50% in China and that number has been declining over time as we continue to further diversify.
Speaker Change: Our manufacturing across our <unk>.
Speaker Change: Different current different countries.
Speaker Change: Thanks very much.
Speaker Change: Your next question comes from the line of Kylie Coe from Jefferies. Your line is open.
Yeah.
Thank you guys. So much for taking my question.
Kylie Coe: You could take a little deeper into optimizing for profitable growth program I'm, just kind of curious what's going really well so far what next to optimize is there any change to that total targeted 200 million number. Thank you.
Speaker Change: Sure. So the optimizing for profitable growth program, we initiated at the beginning of the year targeting $200 million of savings by 2026 combination of cost of goods sold and SG&A.
Speaker Change: And we're off to a very good start in our initial target for the full year 2024 was $60 million, we hit that year to date at nine months and are increasing the expectation for 2024 from that 60 million to <unk>.
Speaker Change: $75 million and most of that upside.
Speaker Change: Coming through the cost of goods sold line.
Speaker Change: As you know we have a strong track record of identifying and achieving our targeted cost savings and are certainly very confident in our ability to achieve the $200 million 2020 goal, although we're not making any changes in that goal at this point, but.
Speaker Change: We're off to a very good start on this one.
Speaker Change: Perfect.
And just one last follow up for me, obviously, you talk a little bit about what you're seeing in your international markets, but I'm wondering if you could expand there and I was wondering if there were any regional changes to call out quarter over quarter.
Speaker Change: No nothing specific.
Speaker Change: About.
Speaker Change: Any specific call outs.
Speaker Change: We continue to execute well.
Speaker Change: There are always going to be puts and takes within the business, but as a whole we feel very good about our execution across region and continued <unk>.
Speaker Change: <unk> focus on.
Speaker Change: An excellent execution execution excellence.
Speaker Change: Perfect well thank you much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Alex <unk> from Bank of America. Your line is open.
Speaker Change: Hi, Thanks for taking my questions here I guess first it seems like there's a lot of optimism around holiday can you maybe touch on how your top retailers are feeling about the category as we inch closer to holiday and then can you talk about if you saw any shift in shipments from <unk> to <unk> <unk>.
Speaker Change: <unk>.
Speaker Change: Take inventory on a more just in time basis.
Speaker Change: Sure So I would say.
Say overall retailer sentiment is positive.
Speaker Change: They prioritize toys.
Speaker Change: Strategic category drives foot traffic in brick and mortar and e-commerce among other benefits for them.
Speaker Change: I'd say, we work very closely with our key retail partners and we plan for.
Speaker Change: Holiday season, then we have a full slate of demand drivers from new products to increase shelf space more presence in the holiday catalog.
Speaker Change: Planning from significantly higher advertising on our pipe part.
Speaker Change: And that's coupled with the.
Speaker Change: Inventory levels are appropriate.
Speaker Change: Working with them to make sure we have the right product in the right place and the right quantity and very confident and that we will see a good holiday season.
Speaker Change: Perfect and then I guess any change in sort of your outlook for the power brands is the expectation that Barbie is going to be down.
Speaker Change: More significantly than you thought previously in the fourth quarter and did your expectation come up for any of the other power brands maybe hop we'll for instance, thanks.
Speaker Change: Yes, I would say no change in the overall.
Category guidance, nor for the power brands themselves. So all moving ahead.
Speaker Change: Our next question comes from the line of Linda Bolton Weiser from D. A Davidson your line is open.
Speaker Change: Yes, hi.
Speaker Change: So on Europe Fisher price wouldn't line it sounds like it's off to a good start I believe there might have been an exclusive period of time at Walmart.
Speaker Change: What's the timing of when exclusivity and then kind of like what's the time frame for that ramp up and expansion globally. Thank you.
Hi, Linda yes.
We started off with an exclusive.
Speaker Change: Period, with Walmart and we are now expanding the product.
Speaker Change: Globally.
Speaker Change: We are adding new franchises to two little people as well and Fisher price as a whole.
Is.
Speaker Change: As having great momentum.
Speaker Change: Up.
Speaker Change: For the second quarter in a row as you know we have a new strategy new leadership Fisher price.
Speaker Change: Still the number one brand in the category.
Speaker Change: And we believe it's very well positioned for continued growth.
Speaker Change: Thank you can I also ask.
Speaker Change: About.
Speaker Change: Yes.
Speaker Change: <unk> has changed their approach where they are outsourcing more of their brands.
Speaker Change: Toymakers to market does that.
Speaker Change: Somehow benefit.
Speaker Change: You're dealing with our retailers because that's sort of fragments hasbro's brand portfolio among <unk>.
Companies that are that are marketing supplying for the retailer so does that benefit you.
Speaker Change: In terms of what their strategy is that they are under taking thanks.
We continue to focus on our strategy two.
Speaker Change: To grow our toy business and expand our <unk> offering.
Speaker Change: When it comes to <unk>.
Speaker Change: Supply chain, we do believe we have a competitive advantage both in terms of scale.
Speaker Change: Quarterly service levels for the retailers and we continue to see the benefits.
Speaker Change: And it's in the numbers so.
Speaker Change: We we believe in the toy business, we believe in the benefits of the toy business and we believe that the toy business is foundational for the opportunities we see outside of the toy aisle is very symbiotic.
Speaker Change: Strong toy business is good for our entertainment and franchise strategy and vice versa. So.
So it's not either or.
Speaker Change: Both that work together hand in hand, and the <unk>.
Speaker Change: Barbie movie and Nabavi franchise is one. Good example, and you will see that across other execution that we will.
Speaker Change: Perform across other key franchises.
Thank you.
Speaker Change: Our next question comes from the line of Jamie Katz from Morningstar. Your line is open.
Hi, good morning or afternoon all.
Speaker Change: Hoping you guys could.
Jamie Katz: Sure a little bit about what you guys are seeing on any sort of shift to value.
Speaker Change: Products.
Speaker Change: There is some price.
Speaker Change: Next headwind, we should anticipate ahead. Thanks.
Speaker Change: Yes, I mean, we're certainly cognizant of what's happening in the consumer space and some cohorts.
Speaker Change: That are under a little bit of pressure and are seeking value.
Speaker Change: Know that price is important to many of those consumers and I think we are well positioned in that regard and we offer quite a range of price points everything from how we all die cast single to Barbie Dream out.
<unk> creation collector items. So again, we think we play into that very well with our brands and our product line.
Speaker Change: And then is there any any.
Speaker Change: Sort of bifurcation in cadence between.
Q.
Speaker Change: Gross margin and SG&A.
Speaker Change: The optimizing for profitable growth program like it's more frontloaded benefits.
Speaker Change: Gross margin I'm, just trying to think about where the trajectory of the gross margin goes after that.
Speaker Change: Or do you see more benefits in the early portion or or is it just slipped.
Speaker Change: Yes, I would say we're off to have Rob to a really good start 60 million.
Speaker Change: Year to date and we probably.
Under index in terms of Cogs I think we're at 60% Cogs, where the whole program is going to be 70%. So more to come on the Cogs side and as we also said, we're taking our full year forecast up to $70 million all of the in the $200 million target for 2026 for now but off to a really good start.
Speaker Change: Excellent. Thank you so much.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of James Hardiman from Citi. Your line is open.
Speaker Change: Okay.
Speaker Change: Hey, good afternoon.
James Hardiman: Thanks for taking my questions. So a couple of follow ups from earlier earlier questions that were asked.
Speaker Change: Anthony I think you mentioned.
Speaker Change: Versus the nice cost deflation that we've seen year to date, you expect that to flip back to inflation.
Speaker Change: In the fourth quarter I guess, maybe.
Speaker Change: Early thoughts on inflation or.
Speaker Change: Deflation in 2045.
Speaker Change: And I guess more broadly I'm, assuming it's way too early to quantify but just qualitatively any other puts and takes as we think about margins for 2025, obviously.
Speaker Change: To continue to push the optimizing for profitable growth program. Just curious if there are any other other puts and takes.
Speaker Change: Yes, I would say generally a bit early for us to comment on 2025, but we have experienced that deflation benefit each of our first three quarters, but it is getting less and less of a benefit I think we did a little over $200 million of deflation in Q1 about $100 million benefit 100 basis point benefit in Q2.
Speaker Change: 30 basis points in Q3, and we think thats going to flip to a little bit of inflation in Q4.
Speaker Change: <unk>.
Speaker Change: To date in 2024.
Speaker Change: Surely benefiting from lower material prices and some declines in ocean freight, but again too early to talk about next year.
Speaker Change: Fair enough and then.
Speaker Change: As you you spoke about the retailer.
Speaker Change: Excitement towards the holiday season, it sounds like they feel like they have a pretty good.
Speaker Change: The right amount of inventory should we be expecting basically one to one wholesale to retail in that key fourth quarter.
Speaker Change: And can you remind us.
Speaker Change: What that looked like a year ago, where we still in Destocking mode, a year ago in which case there might be a little bit of a good guy as we think about wholesale potentially outpacing retail.
Speaker Change: Yes, I would say all things the same potential for a little bit of a tailwind on that on that front. We came into the year. After having made significant progress in 2023, we came into 2024 slightly.
Speaker Change: Elevated.
Speaker Change: So year on year, a bit of a tailwind.
Speaker Change: All else the thing.
Speaker Change: Got it very helpful. Thank you.
Speaker Change: And your final question comes from the line of Fred Wightman from Wolfe Research. Your line is open.
Speaker Change: Hey, guys.
Fred Wightman: Just one quick one if we just look at the EBITDA and the EPS guidance you guys kept the EBITDA guidance unchanged, but made a pretty big change to the tax rate and EPS didn't move so is there something else below the line that's offsetting that.
But given that one more time.
Speaker Change: Yes, it's really just the EBITDA and EPS guidance didn't move but the tax rate came down.
Speaker Change: Pretty significantly is there another offset below the line.
Speaker Change: No I would say all else the same that the tax rate favorability.
Speaker Change: All would move us up a little bit in the EPS range, but it's not significant.
Speaker Change: Okay. Thanks, a lot.
Speaker Change: Yeah.
Speaker Change #100: Thank you.
Speaker Change #100: Thank you everyone for your questions.
Speaker Change #100: <unk>.
Speaker Change #101: Our priorities for the year was to improve profitability expand gross margin and generate significant cash flow in line with our priorities. We did exactly that we achieved another strong quarter of profitability, we expect to grow our EBITDA achieved double digit growth in adjusted <unk>.
Speaker Change #101: In 2024 and generate strong cash flow and this is despite wrapping the incredible success of the Barbie movie in the prior year the.
Speaker Change #101: The company is in the strongest financial position. It has been in many years and we continue to execute our multi year strategy to grow our IP driven toy business and expand our entertainment offerings.
Speaker Change #101: We expect to grow the top line in the fourth quarter and we look forward to a good holiday season from a tale with 62 shopping days to go.
Speaker Change #101: Now I will turn the call back to the operator.
Speaker Change #102: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change #101: Yeah.
Speaker Change #101:
Speaker Change #101: Yeah.
Speaker Change #101: Yeah.
Speaker Change #101: Yeah.
Speaker Change #101: Yeah.