Q4 2024 Mattel Inc Earnings Call
Anthony DiSilvestro, Ynon Kreiz, David Zbojniewicz
David Zbojniewicz
David Zbojniewicz
Jessica: Hello, my name is Jessica and I will be your conference operator today. At this time, I would like to welcome everyone to the Mattel, Inc. Fourth Quarter 2024 Earnings Conference Call.
David Zbojniewicz
Jessica: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again.
Speaker Change: At this time, I would like to hand the call over to Jen Ketnik, VP of Investor Relations at Mattel. You may begin.
David Zbojniewicz
Speaker Change: Thank you, Operator, and good afternoon everyone. Joining me today are Ynon Kreiz, Mattel's Chairman and Chief Executive Officer, and Anthony DiSilvestro, Mattel's Chief Financial Officer. As you know, this afternoon we reported Mattel's fourth quarter and full year 2024 financial results.
Speaker Change: We will begin today's call with Ynon and Anthony providing commentary on our results.
after which we will provide some time for questions.
Speaker Change: 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.
David Zbojniewicz
Are earnings released?
Speaker Change: and the information required by Regulation G regarding non-GAAP financial measures.
Speaker Change: as well as information regarding our key performance indicators is included in those documents. The preliminary financial results included in the earnings release and slide presentation represent the most current information available to management.
Speaker Change: completion of the review by the company's independent registered public accounting firm and other developments that may arise between now and the disclosure of the final results.
Speaker Change: 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.
David Zbojniewicz
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.
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 Ynon.
David Zbojniewicz
David Zbojniewicz
Thanks, Jen.
Speaker Change: Good afternoon, everyone, and thank you for joining our fourth quarter and full year 2024 earnings call.
Speaker Change: 2024 was another successful year for Mattel, as we continue to execute our multi-year strategy to grow our IP-driven toy business and expand our entertainment offering.
David Zbojniewicz
Speaker Change: Our priorities for 2024 were to grow profitability, expand gross margin, and generate strong free cash flow.
Speaker Change: We did exactly that, demonstrating operational excellence and achieving all three objectives well ahead of expectations.
David Zbojniewicz
Speaker Change: Looking at key financial metrics for the full year as compared to the prior year.
Net sales declined 0.5% in constant currency.
Adjusted gross margin improved 340 basis points.
Adjusted EBITDA increased $110 million, or 12%.
Speaker Change: Adjusted earnings per share increased 32%, and free cash flow was nearly $600 million.
David Zbojniewicz
Speaker Change: These results are particularly noteworthy considering the comparison against the success of the Barbie movie, which contributed approximately $100 million of operating income in 2023.
David Zbojniewicz
David Zbojniewicz
Execution on our toy strategy was strong.
David Zbojniewicz
Speaker Change: We also made meaningful progress on our entertainment strategy across film, television, digital, consumer products, and live experiences.
David Zbojniewicz
Speaker Change: The Optimizing for Profitable Growth program is tracking ahead of schedule, with $83 million of savings achieved in the year, out of our $200 million target by the end of 2026.
David Zbojniewicz
We also continue to strengthen our balance sheet.
Speaker Change: ending the year with $1.4 billion in cash after repurchasing $400 million of shares.
David Zbojniewicz
Speaker Change: The global toy industry declined slightly in 2024 per circana, performing better than anticipated and reinforcing our belief that the toy industry has strong fundamentals and will return to growth and continue to grow over time.
David Zbojniewicz
David Zbojniewicz
Speaker Change: In the fourth quarter, we grew top line and achieved very strong profitability.
Net sales increased 3% in constant currency.
Adjusted gross margin, improved 200 basis points.
and adjusted EPS increased 21%.
David Zbojniewicz
Top-line growth was driven by vehicles, action figures, and games.
Speaker Change: partly offset by a decline in dolls and infant, toddler, and preschool.
David Zbojniewicz
David Zbojniewicz
Speaker Change: We made significant progress in scaling our portfolio, optimizing our operations, evolving demand creation, and strengthening our franchise brands.
David Zbojniewicz
We successfully relaunched Catalog IP.
Speaker Change: strengthened our relationships with major entertainment partners and key retailers and created innovative and inspiring product lines.
David Zbojniewicz
Looking at full year performance by category.
David Zbojniewicz
Speaker Change: Vehicles grew meaningfully, driven by Hot Wheels, which achieved its seventh consecutive record year.
David Zbojniewicz
Challenger categories collectively grew.
Speaker Change: led by double-digit growth in games, with UNO achieving its highest year on record and significantly outpacing the industry in games and action figures with strong WWE and Minecraft product offerings.
David Zbojniewicz
Speaker Change: Infant, toddler and preschool was down as we continued to exit power wheels and certain product lines in baby gear in line with our strategy.
Speaker Change: Importantly, Fisher-Price returned to growth this year, driven by Fisher-Price Woods and little people.
David Zbojniewicz
Speaker Change: Dolls was down, primarily due to Barbie, as we wrapped the movie in the prior year.
David Zbojniewicz
Malsehai increased for the second consecutive year since its relaunch.
American Girl grew, reflecting the progress of its turnaround strategy.
Speaker Change: and Wicked, and this is one or two products that performed well and resonated with consumers globally.
David Zbojniewicz
We also made further progress with our entertainment strategy.
Speaker Change: In film, the Masters of the Universe Worldwide Theatrical Release Date of June 5th, 2026, was announced.
David Zbojniewicz
The film will start production this month in London.
Speaker Change: The Matchbox live-action movie was greenlit and is now in production, and Mansi Hai and Bob the Builder movies began development.
Speaker Change: This brings the total number of announced Mattel films in development or production with major studio partners to 16.
David Zbojniewicz
Speaker Change: In television, Hot Wheels Let's Race Season 2 was a top 10 TV show on Netflix in 27 countries.
Speaker Change: All three Barbie animated premieres ranked in the top 10 on Netflix in multiple countries.
Speaker Change: and Barney's World ranked as a top 5 children's show on max as part of a highly anticipated franchise relaunch.
David Zbojniewicz
David Zbojniewicz
Speaker Change: In digital games, Mattel 163, our joint venture with NetEase, continued to grow double digits and exceeded $200 million in gross billings.
David Zbojniewicz
in live events.
Speaker Change: The Hot Wheels Legends Tour completed 22 tour stops in 13 countries.
with attendance growing more than 40% over the prior year.
David Zbojniewicz
2025 is our 80th anniversary year.
Speaker Change: We couldn't be more proud of our mission to create innovative products and experiences that inspire fans, entertain audiences, and develop children through play.
David Zbojniewicz
Speaker Change: Our 2025 priorities are to grow the top and bottom line while increasing investment in our digital games self-publishing business to drive long-term growth in line with our capital allocation priorities to invest in organic growth.
Speaker Change: For the full year, we expect net sales to increase by 2-3% on a constant currency basis.
and adjusted EPS to grow by 2-6%.
Speaker Change: This includes the anticipated impact of new U.S. tariffs on China, Mexico, and Canada imports announced on February 1st, and mitigating actions we plan to take, including leveraging the strength of our supply chain and potential pricing.
David Zbojniewicz
There are several key drivers in 2025.
David Zbojniewicz
Speaker Change: Across our toy categories, we expect vehicles to grow with another record year for Hot Wheels, which includes the launch of our Formula One partnership.
Speaker Change: Games to build on UNO's momentum with more innovation and cultural relevance.
David Zbojniewicz
Speaker Change: Action figures to benefit from new product lines tied to the theatrical releases of a Minecraft movie in April and Jurassic World Rebirth in July, in addition to the global expansion of WWE.
Speaker Change: Infant, toddler, and preschool to expand distribution for Fisher-Price wood across major retailers in the U.S. and internationally?
Speaker Change: Indulge to see improving trends in Barbie driven by optimizing demand creation, product innovation, and leaning further into momentum with adult fans.
David Zbojniewicz
Speaker Change: We also look forward to the launch of new products ahead of Disney's Snow White theatrical release in March and the second Wicked movie in November.
Speaker Change: 2025 will be an exciting year for our in-licensing toy partnerships as Mattel is strengthening its position as a partner of choice for major entertainment companies and sports franchises.
David Zbojniewicz
Speaker Change: As it relates to the toy industry, we expect it will be comparable to slightly up in 2025, primarily driven by the theatrical marketplace returning to a more normalized cadence.
We believe Mattel is well positioned to increase market share.
Speaker Change: In our entertainment business in 2025, we expect progress to continue on our two films in production and 14 announced films in development.
David Zbojniewicz
Speaker Change: More shows to launch on Netflix, including Hot Wheels Let's Race Season 3, Barbie's next animated special, and new seasons of Thomas and Friends and Polly Pocket.
Speaker Change: and to expand our digital business with the goal of launching our first self-published digital game in 2026.
Speaker Change: 2024 was another successful year defined by profit growth, gross margin expansion, and strong cash generation.
Speaker Change: I am grateful to the entire Mattel team for their collaboration, innovation, and execution, and for achieving these results.
David Zbojniewicz
David Zbojniewicz
Speaker Change: As we progress through 2025, we are well positioned to grow and continue to successfully execute our multi-year strategy and create long-term shareholder value.
David Zbojniewicz
I will now hand it over to Anthony.
to cover the financials and our detailed outlook for 2025.
Speaker Change: As you've heard, Anthony has decided to retire, and I would like to thank him for the important role he has played in steering Mattel to achieve its strongest financial position in many years.
David Zbojniewicz
Speaker Change: A search for his successor is well underway, but you're not hearing the last of him today. Anthony will stay in the CFO role until May 15 and continue as an advisor until August 15 to ensure a smooth transition.
Anthony?
Over to you.
David Zbojniewicz
David Zbojniewicz: Thanks, Ynon. It has been an amazing experience for me at Mattel. It's a great company with a very promising future, and I look forward to supporting a seamless transition.
David Zbojniewicz: In terms of Mattel's performance in Q4, as you just heard, we grew top line and achieved very strong profitability.
David Zbojniewicz: Net sales of $1,646,000,000 increased 2% as reported, or 3% in constant currency.
Adjusted gross margin increased 200 basis points to 50.8 percent.
Adjusted operating income increased 10% to $161 million.
David Zbojniewicz: Adjusted EPS increased 21% to $0.35, and adjusted EBITDA increased by $15 million to $249 million.
David Zbojniewicz
David Zbojniewicz: Looking at our full year performance as compared to the prior year, net sales declined 1% as reported and 0.5% in constant currency.
Adjusted gross margin improved 340 basis points to 50.9 percent.
David Zbojniewicz: Adjusted Operating Income increased 15% to $738 million, more than offsetting the Barbie movie-related benefits in the prior year.
David Zbojniewicz: Adjusted EPS increased by 32% to $1.62. Adjusted EBITDA increased $110 million or 12% to $1,058,000,000 and we generated $598 million of free cash flow.
David Zbojniewicz
Speaker Change: Turning to Gross Billings in Constant Currency by Category, beginning with the fourth quarter.
Speaker Change: Overall, gross billings increased 3%, driven by growth in vehicles and challenger categories collectively.
Speaker Change: Parley offset by dolls as we wrap the Barbie movie benefits from the prior year and infant-tolerant preschool as we continue to exit certain product lines into baby gear and Power Wheels segments.
Total POS declined low single digits.
David Zbojniewicz
Dahl: Dahl's Gross Billings declined 3%, due primarily to a 13% decline in Barbie, partly offset by growth in Monster High.
Dahl: Infant, toddler, and preschool declined 4% due to the declines in baby gear and power wheels, partly offset by 4% growth in Fisher-Price, which benefited from little people and Fisher-Price wood.
Dahl: We are happy to see Fisher-Price Group and the turnaround strategy starting to bear fruit.
David Zbojniewicz
Dahl: Turning to the full year, gross billings were comparable to the prior year with gains in vehicles and challenger categories overall offset by declines in dolls and infant toddler and preschool.
POS declined low single digits.
David Zbojniewicz
Barbie Gross Billings declined 12%.
Speaker Change: Vehicle has had an outstanding year, growing 10%, driven by Hot Wheels, Dicast Cars, Traxxon Playsets, and RC.
Speaker Change: As Ynon mentioned, Hot Wheels achieved its seventh consecutive record year.
Disney Pixar Cars and Matchbox also contributed to growth.
David Zbojniewicz
David Zbojniewicz
Speaker Change: Infant-tolerant preschool declined 4% primarily due to baby gear and power wheels reflecting our exit strategy, partly offset by growth in Fisher-Price.
Speaker Change: Fisher Prize grew 4%, benefiting from the launch of F.P. Wood and growth in little people poorly offset by a decline in infants.
David Zbojniewicz
David Zbojniewicz
Looking at fourth quarter gross billings by region.
Speaker Change: Hemia increased 10% Latin America declined 5% reflecting softness in Mexico and Asia-Pacific grew 10% driven by strong growth in Australia
David Zbojniewicz
Speaker Change: Looking at full-year gross billings by region, North America declined one percent.
Leukemia declined 2%.
Speaker Change: Latin America declined 1% and Asia Pacific grew 10% driven primarily by double-digit growth in Australia.
Speaker Change: We ended the year with retail inventory levels comparable to the prior year, both in dollars and weeks of supply.
Speaker Change: While comparable at year-end, retail inventory movements had a positive impact on gross buildings' growth in the fourth quarter, given we're wrapping a more significant seasonal decline in the prior year.
We are beginning 2025 with retail inventory levels slightly elevated.
Speaker Change: Although the inventory is high quality, we expect it will be a headwind to our first quarter performance.
David Zbojniewicz
Speaker Change: Adjusted gross margin was 50.8% in the quarter, an increase of 200 basis points as compared to 48.8% in the prior year period.
The strong increase in margin was driven by several factors.
Savings from optimizing for profitable growth added 90 basis points.
Speaker Change: Lower inventory management costs, primarily closeouts and obsolescence, added 90 basis points.
Speaker Change: Supply chain deficiencies, including fixed-cost absorption, added 90 basis points, and foreign exchange and other factors added 60 basis points.
Speaker Change: These gains were partly offset by an 80 basis point negative mix impact as we wrap up creative benefits associated with the Barbie movie in the prior year and cost inflation, which had a 50 basis point impact in the quarter.
David Zbojniewicz
Speaker Change: For the full year, Adjusted Gross Margin increased 340 basis points to 50.9%.
Speaker Change: The increase was primarily driven by supply chain efficiencies, cost savings, lower inventory management costs, deflation, and other factors which more than offset the prior year benefits associated with the Barbie movie.
David Zbojniewicz
Speaker Change: Moving down the P&L into fourth quarter, advertising increased 10% to $257 million as part of our plans to shift spending into the latter part of the year.
Speaker Change: Adjusted SG&A increased 2% to $418 million primarily due to higher compensation expenses.
Speaker Change: Partly offset by savings from the Optimizing for Profitable Growth program.
David Zbojniewicz
For the full year, advertising decreased 3% to $507 million.
Adjusted SG&A for the full year increased 5% to $1,493,000,000.
David Zbojniewicz
Speaker Change: Adjusted operating income in the fourth quarter was $161 million compared to $147 million, an increase of 10 percent, driven primarily by higher gross margins.
Speaker Change: For the full year, Adjusted Operating Income increased 15% to $738 million, with Adjusted Operating Income margin expanding 190 basis points to 13.7%.
David Zbojniewicz
Speaker Change: Adjusted EBITDA in the fourth quarter was $249 million, compared to $234 million, an increase of 6%.
For the full year, adjusted EBITDA increased 12% to $1,058,000,000.
Speaker Change: Adjusted EPS in the fourth quarter was $0.35 compared to $0.29 in the prior year, an increase of $0.06 or 21%.
Speaker Change: For the full year, adjusted EPS increased by $0.39 or 32% to $1.62.
Speaker Change: In addition to the operating income improvement, EPS performance benefited from higher interest income, a lower adjusted tax rate, and higher earnings from our equity method investment in Mattel 163.
David Zbojniewicz
Cash flow generation for 2024 was strong.
Speaker Change: Cash from operations was $801 million compared to $870 million in a prior year.
Speaker Change: The prior year benefited from lower working capital, primarily driven by a significant inventory reduction.
Speaker Change: Capital expenditures were $203 million, including $59 million for the acquisition of a new global design center to replace a leased facility.
Capital expenditures in the prior year were $160 million.
Speaker Change: Free cash flow was $598 million compared to $709 million in the prior year.
Speaker Change: Consistent with our capital allocation priorities, we repurchased $400 million of Mattel shares in 2024, bringing the total since resuming the program in 2023 to $603 million.
David Zbojniewicz
Speaker Change: Taking a look at the balance sheet, this was another year of improving our financial position.
Speaker Change: We finished the year with a cash balance of $1,388,000,000 compared to $1,261,000,000 a year ago.
Speaker Change: The cash increase reflects our 2024 free cash flow net of shares repurchased.
David Zbojniewicz
Speaker Change: Total debt was $2,334,000,000 consistent with the prior year. Our portfolio is well-positioned with no scheduled maturities until 2026.
David Zbojniewicz
Speaker Change: Accounts receivable were $1.3 billion compared to $1.82 billion, a decline of $79 million.
Speaker Change: The decline was due to foreign currency translation and a reduction in day sales outstanding.
Speaker Change: Inventory at year-end was $502 million compared to $572 million in the prior year, a reduction of $70 million.
Our inventory is at the lowest level in recent years.
Speaker Change: Debt to Adjusted EBITDA finished the year at 2.2 times, excluding the benefit of our $1.4 billion cash balance.
This compares to 2.5 times a year ago.
Speaker Change: The improved leverage ratio was driven by the growth in adjusted EBITDA.
David Zbojniewicz
We continue to generate significant cost savings.
Speaker Change: Under our Optimizing for Profitable Growth program, we achieved cost savings of $24 million in a quarter, with $16 million benefiting cost of goods sold and $7 million in SG&A.
Speaker Change: For the full year, we realized $83 million of cost savings and are tracking ahead of schedule to achieve the program savings target of $200 million by 2026.
David Zbojniewicz
Turning to our guidance for 2025.
Speaker Change: The key drivers of expected sales growth include continued momentum in vehicles and games driven by Hot Wheels and UNO, in dolls, the launch of products tied to the theatrical releases of Disney's Snow White, and the second Wicked movie.
Speaker Change: In Infant Tolerant Preschool, the global rollout of Fisher-Price Wood And in Action Figures, the benefit of licensed movie properties Jurassic World and Minecraft
David Zbojniewicz
Speaker Change: Foreign currency translation, based on current spot rates, is expected to have a negative impact of approximately 2 percentage points on our net sales performance.
David Zbojniewicz
Speaker Change: Adjusted gross margin is expected to be comparable to the prior year.
Speaker Change: Adjusted operating income is expected to be in the range of $740 to $765 million with the increase primarily driven by net sales growth.
Speaker Change: Moving ahead, we will be guiding to Adjusted Operating Income instead of Adjusted EBITDA as we believe Adjusted Operating Income is a more comprehensive profit metric for Mattel.
Speaker Change: Adjusted EPF is expected to be in the range of $1.66 to $1.72 compared to $1.62, an increase of 2% to 6%.
Speaker Change: As Ynon said, this includes the anticipated impact of new U.S. tariffs on China, Mexico and Canada imports announced on February 1st, and mitigating actions we plan to take, including leveraging the strength of our supply chain and potential pricing.
Speaker Change: The guidance is also inclusive of increased investments in our digital games self-publishing business to drive long-term growth, which are reflected in SG&A and in line with our capital allocation priorities to invest in organic growth.
Speaker Change: We continue to improve productivity and expect to achieve $60 million in additional cost savings during 2025 through our Optimizing for Profitable Growth program.
Free cash flow is expected to be approximately $600 million.
David Zbojniewicz
Speaker Change: Reflecting confidence in our strategy to create shareholder value, we are targeting $600 million in shareware purchases in 2025, subject to market conditions.
together with the $400 million we purchased in 2024.
Speaker Change: This will fully utilize our total $1 billion authorization in just two years.
Speaker Change: The benefit of shared purchases is reflected in our EPS guidance.
Speaker Change: The guidance considers what the company is aware of today, but remains subject to market volatility, unexpected disruptions, including additional regulatory actions impacting international trade such as tariffs and other macroeconomic risks and uncertainties.
David Zbojniewicz
Speaker Change: We look forward to growing the top and bottom line in 2025 as we execute our strategy.
David Zbojniewicz
David Zbojniewicz
Speaker Change: Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad.
Speaker Change: And our first question comes from a line of Stephen Lazczyk from Goldman Sachs. Stephen, your line is open.
and David Zbojniewicz.
Stephen Lazczyk: Hey, great. Thank you for taking the questions. Two if I could. Maybe first for Ynon, could you talk a little bit more about what's giving you confidence in achieving that top-line growth outlook for 2025 of 2-3%? You mentioned some of the opportunities to get ahead in vehicles, games, and action figures. Could you maybe expand on that a little bit? And then I'd be curious what you're hearing from your retail partners and the man side as we head into 2025.
Stephen Lazczyk: especially against a year and a holiday where it seems like inventory exited at somewhat elevated levels.
Stephen Lazczyk: Any thoughts there would be much appreciated. And then a quick one for Anthony, hopefully. Is there any more detail you can give us around the assumptions or factoring into your guidance as relates to tariffs and some of the factors and contingencies you're planning to put in place if they stay in place?
Stephen Lazczyk: for the duration of the year, particularly around any headwinds to unit sales or margins that you're factoring in. Thank you.
David Zbojniewicz
Speaker Change: Hi, Steven. We expect a few drivers, both in toys and entertainment. On the toy side,
Stephen Lazczyk: We are seeing continued momentum in vehicles and games driven by Hot Wheels, which we believe will have another record year, and Uno, which just had its highest year ever.
Stephen Lazczyk: Both brands are doing really well with a lot of innovation and we expect them to continue to drive business.
Stephen Lazczyk: In Dallas, we're launching a product tied to the theatrical releases of Snow White with Disney and the second Wicked movie. And we also expect improving trends in Barbie. By then, it will be two years post the movie.
Stephen Lazczyk: In infant, toddler and preschool, we are launching, rolling out globally, Fish Price Wood, which is having a very good momentum. In action figures, we're going to bring out two big movies, Jurassic World and Minecraft.
Stephen Lazczyk: and continue to expand globally, WWE, which is itself benefiting from the Netflix show that they're rolling out around the world.
Stephen Lazczyk: We also have on the entertainment side some good drivers as well with more shows on Netflix.
Stephen Lazczyk: Hot Wheels Let's Race Season 3, Barbie's Animated Special and new seasons of Thomas and Friends and Polly Pocket. Also Barney is having its own exposure on Max.
Stephen Lazczyk: and we continue to drive the business overall. So good momentum, strong execution, and feeling very good about the CrossFit for the year.
Stephen Lazczyk: And I could comment on T1 and I'll come back to tariff, Stephen.
Stephen Lazczyk: With respect to Q1 and how we're starting the year, POS is off to a good start. But there are a couple of factors that need to be considered with respect to gross billings.
Stephen Lazczyk: in the court. The first is there is a later Easter holiday, 2025.
Stephen Lazczyk: And as a result, you know, we would expect some modest shift of timing of shipments.
Stephen Lazczyk: And also, as we stated, we ended 2024 with retail inventories slightly elevated. Now this inventory is high quality and we'll work through it in the first quarter. And importantly, you know, we're guiding the top and bottom line growth for 2025.
Stephen Lazczyk: Moving to the topic of tariffs, you know, taking a step back for a moment, over the past several years we have been continuously optimizing and diversifying our manufacturing.
Stephen Lazczyk: Today, we source products from seven different countries, and in 2025, we expect China will represent less than 40% of global production for our toys, and that's compared to an industry average of about 80%.
David Zbojniewicz
Stephen Lazczyk: And with the U.S. representing about half of our global toy sales, our tariff exposure in the U.S. related to China should be about 20% of global production.
Stephen Lazczyk: And with respect to Mexico and Canada, we currently source less than 10% of our toys from Mexico and have no sourcing from Canada.
Stephen Lazczyk: And by 2027, no single country is expected to represent more than about 25% of total global production, or about half of that in terms of U.S. sales.
Stephen Lazczyk: Now, with respect to the tariffs, our teams have been fully engaged in analyzing and planning for a range of scenarios.
Stephen Lazczyk: And in terms of the financial impact on Mattel, our 2025 guidance includes the anticipated impact of the new tariff based on what we know today and mitigating actions we plan to take.
Stephen Lazczyk: including those leveraging the strength of our supply chain and potential prices.
David Zbojniewicz
That's great. Thank you very much.
David Zbojniewicz
David Zbojniewicz
Speaker Change: Your next question comes from the line of Alex Perry with Bank of America. Alex, your line is open.
Alex Perry: Hi, thanks for taking my questions here and congrats on a strong quarter and Anthony, congrats on your retirement as well.
Speaker Change: I guess just first, I sort of wanted to follow up on that last line of questioning.
Speaker Change: And then just back to the first quarter, Anthony, how much below that sort of full year 2% to 3% growth should we be thinking about for the first quarter? Thanks.
David Zbojniewicz
David Zbojniewicz
Speaker Change: Ynon went through some of the key drivers in terms of our expectation around 2-3% net sales growth in constant currencies, so I don't need to repeat those.
Speaker Change: We believe there's enough drivers. We believe we are well-positioned to outpace the industry.
Speaker Change: and gain market share in 2025, right? We have a lot of innovation coming. We have a lot of activations coming. Again, we're very confident we can achieve that guidance.
In terms of the flow of the first quarter, right?
Speaker Change: We talk about retail inventory levels. We ended the year with retail inventory comparable to the prior year. So a little bit of.
Speaker Change: Edwin, as we go into Q1, and that's why we mentioned that in terms of the first quarter outlook and also the timing of the Easter holiday. But beyond that, we expect to achieve growth, balance a year, and achieve our guidance.
David Zbojniewicz
Speaker Change: You know, you got to 25 ahead of expectations inclusive of the impact of tariffs.
Speaker Change: Any help on, you know, what you're actually doing to mitigate, are there certain parts of the portfolio that you think you have the elasticity to raise price on? Are you cost-sharing with suppliers?
Speaker Change: Maybe just any, like, EPS or quantification of, you know, what's embedded in the guide in terms of a bottom line hit from the tariffs, especially as it relates to, you know, Mexico and Canada, since those are now delayed.
David Zbojniewicz
Speaker Change: Yeah, I mean, I understand the question, but, you know, without getting into specifics on our end, because there is many puts and takes to that, to this.
Speaker Change: You know, as we said, you know, our guidance does include a range of assumptions.
David Zbojniewicz, Ynon Kreiz, David Zbojniewicz
Speaker Change: And certainly against the tariff, we have a range of mitigating actions. We don't want to necessarily disclose our playbook, but, you know, they are in response to the tariff. They do leverage the strength of our global supply chain. And they also include, you know, potential price increases.
Speaker Change: And, look, we do work closely with our retail partners, you know, to achieve the right balance and always keep, you know, consumers in mind when we consider pricing actions.
David Zbojniewicz
Speaker Change: Just to add the point on supply chain that Anthony touched on, which is this has been a strategy that we've implemented since 2018.
Speaker Change: It was a proactive strategy to diversify and build a geographically balanced supply chain infrastructure that will allow us to be in a better position for different eventualities.
Speaker Change: It wasn't about any one particular country, and it wasn't even necessarily about tariffs. It was just about making sure you have a resilient, flexible, well-diversified supply chain system.
and between our own factories and third-party factories.
Speaker Change: We have a lot of flexibility in the model and this would be our first port of call. How do we leverage our capabilities there and of course we have other mitigating actions we can take but feel good about the plan factoring what's been announced and other potential changes as well.
David Zbojniewicz
Perfect. All very helpful. Best of luck going forward.
Thank you.
David Zbojniewicz
Speaker Change: Your next question comes from the line of Megan Clapp with Morgan Stanley. Megan, your line is open.
Megan Clapp: Thanks so much. Congrats to Anthony as well. We will certainly miss you. I'm gonna try and ask this question again, maybe just a bit more pointed. On the first quarter, can you just help us understand how much sales should be down? There's a lot of moving parts. If I just simply do math on...
POS was down low single digits in the fourth quarter.
Megan Clapp: Your shipments were up, you know, 2%. That's a five-point gap.
David Zbojniewicz
Rose Billings relative to the U.S. somehow being
Megan Clapp: Hedwin into 2025 and that's not the case. Let me talk a little bit about
Megan Clapp: the delta between Gross Billings and POS in the fourth quarter, and I got to go back a little bit and give you a little bit of context. You know, retail inventory levels typically follow a seasonal pattern. They increase in the third quarter ahead of the holiday season and decline in the fourth quarter, right, as the products sell through.
Megan Clapp: and the change in that build and decline year over year impacts our growth billings. And what happened is, in the fourth quarter of the prior year,
Megan Clapp: saw a more significant decline in the four quarter compared to this year and that's what's driving this delta between gross billings and POS. So it's more to do with last year and as opposed to this year and it's not a carryover impact into 2025.
That's sad.
Megan Clapp: Our inventory levels are slightly elevated, so we have a, I would call it a very modest impact to correct that situation in Q1. Right, so we're pointing that out as a headwind. The other potential headwind is a little bit of timing shift to later holiday season.
Megan Clapp: So, we're not guiding to Q1, just saying, look, we're going to be below our full year run rate because of those two factors.
David Zbojniewicz
Okay. But I would say... Mike.
We've been in that.
Megan Clapp: We've been in that more normal 35-65 range and there's no expectation that will change in 2025.
David Zbojniewicz
Speaker Change: Okay, and then maybe just as a follow-up, you talked about increased investment in digital. Is that OPEX or CAPEX? I didn't catch if you gave us CAPEX guidance, so if you could give us CAPEX guidance, that would be great as well.
David Zbojniewicz
Speaker Change: we've talked about before, to capture more of the upside, right, and drive long-term growth, right. And, you know, again, these are self-publishing efforts. They'll be recorded in the SG&A line, not CapEx.
Okay, thank you.
David Zbojniewicz
David Zbojniewicz
Speaker Change: Our next question comes in the line of Chris Horvers with J.P. Morgan.
Chris, your line is open.
David Zbojniewicz
Speaker Change: Can you give broad strokes views on what the drivers of gross margin would be? It would seem like you still have, you know, the efficiencies for gross have come in better than expected.
Speaker Change: It seems like you should still have a good benefit there coming into 2025.
Speaker Change: plus a little bit of scale benefit or fixed cost absorption.
Speaker Change: and the third would be cost savings from our Optimizing for Proper Growth program.
Speaker Change: We achieved $83 million of savings in 2024 and are guiding to an additional $60 million of savings in 2025, and the majority of those will benefit costs of goods sold. But when you put all those factors together, that supports the guidance of comparable performance on gross margin year-over-year.
David Zbojniewicz
Speaker Change: Got it. And then just as we think about the tariff impact and the ability to execute pricing, I guess presumably there'll be a lag to that.
Speaker Change: So, you know, is it sort of embedded in there, so more headwinds earlier and then recovery later in terms of how the gross margin sort of shape will look?
David Zbojniewicz
Speaker Change: Yeah, there's a little bit of delay to both actions, you know, we have to run, you know, inventory through the balance sheet There's a lag there, you know, so
Speaker Change: You know, without getting into too much, you know, detail, you know, we're confident that we can execute these actions and when you consider our growth margin holistically, you know, we plan to hold our margin year over year.
David Zbojniewicz
Speaker Change: Got it. And then one quick 1Q sales follow-up, which is, as you think about the timing of Snow White and Minecraft, is that potentially substantial enough to offset the later Easter?
No, I wouldn't say so.
David Zbojniewicz
David Zbojniewicz
Speaker Change: Your next question comes from the line of Arpine Kocherian with UBS. Arpine, your line is now open.
David Zbojniewicz
Hi, thank you. Strong set of results. Congratulations.
Speaker Change: To just maybe ask one more question somewhat related to tariffs, do you expect major shifts in FOB at all, given tariffs, typically, you know, that could be as much as...
Speaker Change: 40-50% of annual shipments. Could there be any sort of surprises there in terms of what retailers could do given the changing landscape of tariffs? Any color there would be great. And then I have a quick follow-up.
David Zbojniewicz
Okay.
Speaker Change: including entertainment plans and timing. Do you have any updates on the movie on Hot Wheels?
David Zbojniewicz
David Zbojniewicz
David Zbojniewicz
Speaker Change: a very broad range of products, different lines and different executions and continuing all along to build a strong relationship, emotional connection with fans all over the world and broadening
Speaker Change: and the audience even more, you know, achieving seven consecutive record years is a huge achievement and we also are saying now that we are targeting another record year.
Speaker Change: You can see also how we continue to innovate and add new partnerships. F1 and Ferrari, recent announcements, both were launched this year with a whole range of die-cast cars.
Speaker Change: You know, there's something very telling about the range of products that we have with Hot Wheels, where
Speaker Change: On one hand, we sell a product at $1.25, this is Hot Wheels' basic car, which is the number one selling point in the industry, all the way to a $700. Daniel Arsham,
Speaker Change: collector set as well. So you have a full range, incredible product offering across different price points.
We also continue to evolve outside of the toy aisle.
Speaker Change: There's the TV show, the Hot Wheels Let's Race, that is doing well and expanding distribution.
Speaker Change: And this is before we even talk about the movie, which is also developing well, produced by J.J. Abrams at Warner Brothers.
Speaker Change: I can't reveal too much, but it's getting better and better in terms of the package we're putting together. And when this comes out, there will be a whole new level of exhilaration and excitement that we expect will happen.
David Zbojniewicz
I didn't hear the first part to your question, Arpaneh.
Speaker Change: Yes, so we haven't given any specifics around pricing actions. That's something that's, you know, one of the potential actions related to the tariffs. And again, as we said, you know, we're going to be working closely with our retail partners here to find the right balance on that front.
Got it. Thank you. Congratulations, Ynon.
Thank you, Arpanet.
David Zbojniewicz
Speaker Change: Your next question comes from the line of Eric Handler with Roth Capital. Eric, your line is now open.
Good afternoon. Thank you for the question.
Speaker Change: Anthony, just you know you gave good perspective on the puts and takes for gross margin. I wonder if you could do the same for operating expenses and then also with regard to the to the guidance, are buybacks assumed as part as one of the drivers in the bottom line expectations?
David Zbojniewicz
Speaker Change: Yes, so let me start with the buybacks we've been, you know,
Very active on the buyback front, you know, we resumed
Speaker Change: We did $400 million in 2024. Now we're accelerating to a targeted level of $600 million in 2025. And, you know, we have built in, you know, the benefit of that in terms of the lower share count and the benefit, you know, to, you know, EPS. So that's in there. And, you know, with that $600 million, you know, we would have, you know, repurchased close to 20% of our market cap.
Speaker Change: and fully utilize the $1 billion authorization in just two years.
Speaker Change: In terms of the middle of the P&L, we're not giving specific guidance, but I don't think you'll see levels materially different from the current year.
David Zbojniewicz
Speaker Change: Okay, thank you. And Ynon, you know, you've talked a long time about wanting to, you know, build up entertainment. You said entertainment at scale can be very profitable.
Speaker Change: Can you give us some perspective and you listed a whole bunch of things, you know that impacts your Entertainment line, but how big is this entertainment bucket? Right now and where do you think that can go over the next several years?
David Zbojniewicz
Speaker Change: Thanks, Eric. We talked about it before, that we haven't provided a breakdown between, you know, boys,
and the entertainment strategy, but we have said...
Speaker Change: And we still say, and are very encouraged by the programs we are seeing, that
Speaker Change: on our financial profile. And, you know, there's one example I can talk about or, you know, something current that we mentioned before that is
and self-publishing still within a capitalized construct?
Speaker Change: So it doesn't change, you know, our risk profiles, but it does give us what we believe is an asymmetric potential return.
Speaker Change: in an exciting, growing industry where brands play a critical role. And our strategy is all around how do you leverage the strength of our brands
Speaker Change: to create additional value outside of what we used to do as a company, primarily just in the toy business.
of the
Speaker Change: Where we stand out is with the strength and quality of our portfolio. These are brands that have heritage value, very diverse mix of franchises across genre and demographics.
that is a very current, very title.
Speaker Change: and really move the needle. So we are now executing the strategy at scale.
and David Zbojniewicz.
Speaker Change: The question now is, can you do that at scale? And this is exactly what we are in terms of our journey. And you will see more of that coming through in the coming years.
David Zbojniewicz
Thanks, Ynon.
David Zbojniewicz
Thank you, Eric.
Speaker Change: Your next question comes from the line of Fred Whiteman with Wolf Research. Fred, your line is open.
Speaker Change: Hey guys, thanks for the question. I just wanted to ask on the industry outlook, you've been pretty emphatic and pretty consistent that you'd expect that to grow in 2025, but if you look at the language in the release and the slides today, you're saying comparable to slightly up. So I'm wondering what maybe is giving you a little bit more caution versus your prior outlook?
Well, we've been very consistent.
Speaker Change: about our positive outlook with respect to the industry and, you know, entering even 2024.
As you'll recall, the expectation was for...
Speaker Change: you know a high uh even up to a high single digit decline when you when you heard what other people said and we we we've always been more positive and we're glad to see that the industry did stabilize and only declined slightly.
David Zbojniewicz
Speaker Change: And so, you know, this is a good place relative to what the expectations were out there.
Speaker Change: and we continue to see the industry performing better than people expect. We continue to believe that the toy industry has strong fundamentals and that it will return to growth and will continue to grow over the long term.
Speaker Change: We're seeing toys continue to play an important part of consumers' lives. We're seeing retailers prioritizing toys as a strategic lever. We know that toy shoppers drive traffic, they spend more time in stores, and typically have a bigger basket.
Speaker Change: We, you know, looking back, you see that toys over time, toy POS, has been growing and outpacing declines in birth rates.
Speaker Change: The industry growth has been driven by both pricing and units, which is a healthy place to be, and the adult collectors, you know, this is proving to be a sustainable trend.
So, with that, we do expect the industry to be...
Speaker Change: Comparable to slightly up in the year, we're seeing theatrical movies coming back to their normal cadence.
Speaker Change: with a whole slate of movies. You know, we have some exciting partnerships. We mentioned Snow White and Minecraft, Jurassic World.
Speaker Change: the second Wicked movie, but there are other movies that are coming out, all of which gives the industry buoyancy. This is not just about toy product directly related to these movies, but it's a general buoyancy in the industry.
Executive, Ynon Kreiz, David Zbojniewicz
Speaker Change: Nope, that's super helpful. And then just one more quick one. Could you give us a little bit of color on how you're thinking about Mattel Brick Shop, maybe what the opportunity for that could be, how quickly that could ramp, and maybe what that means for some of the other construction brands that you guys have? Thanks.
Thank you.
Speaker Change: Yes, this is another exciting opportunity for Mattel where we leverage our capabilities between design, a very strong supply chain, and a global commercial platform.
Speaker Change: We haven't announced the exact product that we are launching, we said we will do that in May, but as always you can expect
Speaker Change: and relationships that fans have with Mattel. This will not be under the Megabrands.
Speaker Change: but under the Mattel umbrella brand. And same strong people that we have in the company will drive that. And we are excited by this opportunity to have another road driver for us.
Thank you.
Great. Thanks a lot.
David Zbojniewicz
David Zbojniewicz
Speaker Change: All right, and our final question is from the line of Linda Bolton-Weiser with D.A. Davidson.
David Zbojniewicz
Yes, hello. So I was curious about the mitigating
Speaker Change: that maybe you can be able to kind of be more competitive against your competitors. And in some ways, tariffs could help your positioning in the industry. I'd be interested in your thoughts on that.
David Zbojniewicz
Speaker Change: You can call it a handicap at some point in the past, but we now see this as a very strong competitive advantage.
and what you've seen is that in...
Speaker Change: times where there's this location in the market and changing dynamics and different and challenging market conditions we stand out.
We are very good at managing complexities.
This is what we do.
Speaker Change: During COVID, where supply chain was a real bottleneck for many people, not just in toys, I'm talking more broadly, supply chain was one of our strongest competitive advantages, and we continue to leverage that across multiple ways. This is not, I should say, this is not just about cost.
It's also about...
It's about service levels.
It's about how we work with retailers.
It's about how do you place
on the right shield.
You know, we work with 500,000...
and David Zbojniewicz.
Speaker Change: This doesn't include online retail and e-commerce that comes on top of that.
Okay. Thank you.
Thank you, Linda.
David Zbojniewicz
Speaker Change: Looking to 2025, we are excited to celebrate Mattel's 80th anniversary and are well positioned to continue to grow profitability and capture the full value of our IP.
Speaker Change: Before we conclude today's call, on behalf of all of us at Mattel, I would like to express our sadness for those impacted by the devastating wildfires in our headquarters city.
Speaker Change: Mattel has been working extensively with non-profit partners to support children and families in need following this unprecedented crisis.
Speaker Change: Our hearts go out to all those who have been affected, including our LA-based team members and all of our partners, and our support is ongoing.
Speaker Change: Thank you. Thank you, everyone. And now I will turn the call back over to the operator.
David Zbojniewicz
Speaker Change: Thank you again for joining us. This does conclude today's conference call. You may now disconnect.
David Zbojniewicz
David Zbojniewicz