Q1 2025 Mattel Inc Earnings Call
Abby: Ladies and gentlemen, thank you for standing by. My name is Abby and I'll be your conference operator today.
Abby: At this time, I would like to welcome everyone to the Mattel Inc. First Quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise.
Abby: After the speakers remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time.
Speaker Change: Thank you, and I would like to turn the conference over to Jen Kettnich, Head of Investor Relations. You may begin.
Thank you, operator, and good afternoon, everyone. Thank you, everyone.
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. Please note that during the question and answer session, we respectfully ask that you limit to one question and one follow up so that we can get to as many analysts and questions as possible today. Thank you very much.
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.
Speaker Change: As well as information regarding our key performance indicators is included in those documents.
Speaker Change: The preliminary financial results included in the earnings release and site presentation represent the most current information available to management.
Speaker Change: The company's actual results when disclosed and its form 10Q may differ as a result of the completion of the company's financial closing procedures, final adjustments.
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: Before we begin, I'd like to caution you that certain statements made during the call are forward-looking, including statements related to the future performance of our business, brands, categories, and product lines.
Speaker Change: Any statements we make about the future are by their nature uncertain. These statements are based on currently available information and assumptions and they are subject to a number of significant risks and uncertainties that could cause our actual results to differ from those projected in the forward-looking statements.
Speaker Change: We describe some of these uncertainties in the risk factor section of our latest form 10k annual 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.
Ynon: Welcome everyone and thank you for joining Mattel's first quarter of 2025 Learning School.
Ynon: We have a strong first quarter with top-line growth and growth margin expansion, positive performance across most categories and markets, and continued operational excellence.
Ynon: Looking at key financial metrics for the first quarter as compared to the prior year.
Ynon: Next sales grew 2% as reported, and 4% in Concentre Currency [inaudible]
Adjusted gross margin increased 130 basis points to 49.6%
and the Justin Ividar grew 7% to 57 million dollars.
David Zbojniewicz, David Zbojniewicz,
Ynon: We continue to benefit from a strong balance sheet including $1.24 billion in cash at quarter and after repurchasing $160 million of shares in the period.
Ynon: A key topic that further developed during the quarter is tariffs and global trade uncertainty which are having a significant impact on the toy industry.
Well, tariffs did not affect our first quarter financial results [inaudible]
Ynon: We're taking mitigating actions designed to fully offset the potential incremental cost impact of Paris on future performance in three key areas.
Ynon: Accelerating diversification of our supply chain and further reducing reliance on China's source product.
optimizing product sourcing and product mix.
and we're necessary, taking pricing action in our U.S. business.
Ynon: Over the past several years, we have diversified our manufacturing footprint and developed a flexible model to adapt efficiently to changing market conditions.
Ynon: China currently represents less than 40% of global production for our toys.
compared to an industry average of 80%
Ynon: In terms of US imports from Mattel, China represents less than 20% of global production.
Ynon: While China continues to be an important source in country for us on the global basis, we have been accelerating plans to further reduce reliance on China's source product as part of our diversification strategy.
Ynon: As an example, in 2025, we will be relocating production of 500 toy spews from China to other
Ynon: This is up from 280 skews which we relocated in 2024, well before the recent US parrots were enacted.
In terms of optimizing product sourcing and product mix,
Ynon: With the benefit of Mattel's global scale and diversified supply chain, we are shifting sourcing flows across our portfolio between countries where we make products and countries where we sell products.
Ynon: This will enable us to further lower the amount of Chinese source product in the US and reduce exposure to the US tariffs.
Ynon: In some cases where a product is in high demand, we will do the source from two or more countries and can use this to our advantage.
Ynon: For example, Uno which is produced in both China and India is increasing flow from China towards international customers [inaudible]
Ynon: and we are significantly ramping up volume in India to serve the US market.
Ynon: The combination of further diversifying our supply chain footprint and optimizing product sourcing and product mix
Ynon: is expected to reduce our US imports from China to less than 15% of global production by 2026.
Ynon: and less than 10% by 2027, with the additional contingency plans to accelerate that, if required.
Ynon: Taking pricing action in our US business will be done in close collaboration with our retail partners, while always keeping the consumer in mind to ensure we offer the right balance of price and value and maintain high quality standards.
Ynon: Under the current scenarios we are considering, we expect that 40 to 50% of our product would be priced at $20 or less.
Ynon: The Breath of Output Folio, Innovative Products, the Versified and Flexible Supply Chain, and Global Commercial Organization are clear advantages for Mattel in this period of uncertainty.
Ynon: Instraintening our standing as a trusted partner for retailers and consumers
Ynon: We support the US Toy Association and other global toy associations advocating for zero tariffs on toys and games globally to ensure that safe, affordable and high quality toys remain accessible to all.
Toys are foundational to a child's growth and development [inaudible]
Ynon: Zero tariffs for toys, gives the greatest number of children and families access to play.
Coming back to the first quarter's performance
Our business grew across most categories and geographies [inaudible]
Ynon: Groten Gross Billings was driven by action figures, vehicles, dolls and games
There are several recent highlights worth mentioning by category of the story.
Ynon: Dahl's Group, with strong performance in business princess and wicked, while Barbie and American girl were comfortable for prior years.
Ynon: The Barbie brand continues to resonate, driven by innovation, cultural relevance, and strong appeal among adult fans [inaudible]
Vehicles continue to grow driven by hot wheels
Ynon: The Formula One pretzel is a great setup for the mass launch in the form.
Ynon: and the first product from our new partnership with Ferrari sold out on Mattel Creations.
Ynon: with an infant partner in preschool, the Lubarni Toiline, Fisher Price Wood and Little People
Ynon: Challenger categories as a whole would double digits and had several wins
In games, Uno achieved a record first quarter David Zbojniewicz, David Zbojniewicz,
Ynon: Action figures, group double digits driven by Minecraft, Jurassic World and WWE.
Ynon: Minecraft product performed particularly well, enhanced by the live action movie, which is the largest grossing domestic film so far this year.
Ynon: Also in action figures, we recently renewed multi-year global licensing agreements with WWE and with Disney for Toy Story, including next year's theatrical release Toy Story 5 .
Ynon: Disagreements, combined with our previously announced licensing partnership with DC, which will begin mid-2026.
Ynon: Further established Mattel has a partner of choice for the major and development companies and IT owners .
Our entertainment strategy also continues to make exciting progress [inaudible]
Ynon: In film, The Matters of the Universe Movie is well into production in London ahead of its worldwide theatrical premiere on June 5th, 2026 .
Ynon: The Mads Rocks movie just wrapped principle photography and it slated for release in the fall of 2026.
Ynon: In the Barney movie, with Daniel Kuluja's 59% Productions in 824, is in development and will be written by Amy and Golden Globe winner, Ayor Edabry David Zbojniewicz, David Zbojniewicz,
Ynon: In television, Hartwell's Let's Race, Season 3, and a new Barbie special, both premiered on Netflix.
Ynon: In digital games, we continue to progress towards launching our self-publishing business and targeting the release of the first game in 2026.
Ynon: At Mattel, one six three, our digital games, John Panger, with net ease, the first quarter net income contribution increased nearly 75% from the prior year.
Ynon: Following a strong first quarter, we are also off to a strong start in the second quarter with POS up double digits for today, both in the US and internationally.
Ynon: We expect the second quarter to benefit from the highly anticipated Jurassic World rebirth movie
Ynon: Continued performance in our innovative Minecraft movie product and ongoing momentum in Hot Wheels.
Ynon: We also recently announced the launch of our first product collection for the Mattel bridge shop, Hot Wheels Collector Building sets for adult fans, which will reach full retail distribution this summer.
Ynon: Given the volatile macroeconomic environment and avoiding US tariff situation, it is hard to predict consumer spending and our US sales in the remainder of the year and holiday season.
Ynon: We are therefore causing fully a 2025 guidance, I think we have sufficient visibility
Ynon: That said, we are confident about the mitigating actions we are taking, which are designed to fully offset the potential incremental cost impact of tariffs on future performance.
Ynon: Our International Business, which comprises roughly half of our overall revenue, is not expected to be materially impacted by tellings.
Ynon: Historically, the toy industry has proven to be resilient during uncertain times [inaudible]
Ynon: And we believe Mattel is in a much better position than the industry to adapt efficiently to the changing market conditions .
Ynon: As a global leader in toys and family entertainment, brands of thriving, products and experiences stand out in the marketplace, and our supply chain is a competitive advantage.
Ynon: We have a strong balance sheet that gives us flexibility to execute our strategy to grow Mattel's IP driven toy business and expand our entertainment offering.
Ynon: We are maintaining our target of $600 million of share repurchases for 2025 in line with our capital allocation priorities.
David Zbojniewicz, David Zbojniewicz,
In closing.
Ynon Kreiz: This was a strong quarter for Mattel with top line growth and growth margin expansion and continued operational excellence.
Ynon: At Mattel, we are very good at navigating complexity, volatility, and dynamic situations .
Ynon Kreiz: We are adapting with feeds, agility and discipline and are ready for the challenge.
Ynon Kreiz: As we look ahead, we expect not only to manage with this volatile period but strengthen our competitive position .
Speaker Change: Before I hand it over to Anthony, I would like to thank him once again for his many contributions to the company as our chief financial officer for the last five years.
Speaker Change: We expect to announce its successor in the near future and look forward to Anthony's continued service as an advisor over the next seven months to ensure a similar transition.
Speaker Change: Anthony, over to you to cover the financials in more detail one last time.
Speaker Change: Thank you for the kind words, and on. It's been a pleasure to be part of Mattel.
Speaker Change: In the first quarter, we grew top line and expanded gross margins, with broad base category
Speaker Change: Net sales increased 2% as reported and 4% in consum currency to $827 million.
Adjusted Gross Margin increased by 130 basis points to 49.6%
Speaker Change: Adjusted operating loss improved by $7 million to a negative $16 million driven by sales growth and gross margin expansion.
Speaker Change: Adjusted lost per share, improved 2 cents to negative 3 cents, and adjusted eva.increased 7% to $57 million.
Turning to gross billings in constant currency.
Speaker Change: Total gross billings increased 5% with growth across most categories and regions
Speaker Change: POS increased low single digits, including the adverse impact from a later Easter holiday this year
Speaker Change: Dolce Gross-Delvings increased 2%, primarily driven by growth in Disney Princess and Wicked, while Barbie and American Girl were both comparable to the prior year.
Vehicles increased six percent.
Speaker Change: Hot Wheels increased 7% driven by growth in die-cast cars, both the kids and collector segments, and tracks and play sets.
Speaker Change: Infant Tyler and preschool overall declined 5% due primarily to declines in baby gear and power wheels following planned exits.
Speaker Change: Parley Offset by Growth in Preschool Entertainment, benefiting from the launch of Barney David Zbojniewicz, David Zbojniewicz,
Speaker Change: While Fisher-Price POS increased low single digits in the quarter, Fisher-Price gross billings declined 1%, due to infant, mostly offset by growth in Fisher-Price wood and little of people.
Speaker Change: As a reminder, in line with our strategy, most of the plan exits the power wheels and certain product lines in baby gear will have been completed by the end of this year.
Speaker Change: Challenger categories, overall increased 14% driven by growth in action figures and games, poorly offset by a decline in building sets.
Speaker Change: The growth in action figures was driven by Minecraft and Jurassic movie properties and WWE.
Speaker Change: Looking at our first quarter performance geographically, we achieved growth in three of our four regions.
Speaker Change: Gross Billings increased 4% in North America, including double digit growth in Canada.
EMEA increased 8% with growth across almost every market.
Speaker Change: Asia Pacific increased 12% driven by growth in Australia, India, and China [inaudible]
Speaker Change: Lad and America declined seven percent, reflecting the impact of retailers reducing inventory levels as anticipated.
Speaker Change: Retail inventory is up high single digits globally compared to the prior year, reflecting the impact of a later Easter holiday and a build up of movie related products ahead of theatrical releases.
Speaker Change: We believe retail inventory overall is at appropriate levels and of good quality.
David Zbojniewicz, David Zbojniewicz
Speaker Change: Adjusted gross margin was 49.6%, an increase of 130 basis points compared to the prior year.
Speaker Change: The increase was primarily driven by lower inventory management costs, principally
Speaker Change: and Savings from the Optimizing for Properly Growth Program, which each added 110 basis points.
Speaker Change: These were partly offset by cost inflation, which had a negative impact of 100 basis points mainly driven by higher labor and logistics costs.
Speaker Change: Moving down the piano, advertising expenses of $70 million for copper bull to the prior year.
Speaker Change: and adjusted SGNA increased 4% to $355 million due to investment-related spend and compensation perly offset by savings from the Optimizing for Profitable Growth Program.
Speaker Change: Adjusted operating loss improved by $7 million to a negative $16 million with the improvement driven by net sales growth and adjusted growth margin expansion.
Adjusted EBITDA, improved $4 million to $57 million.
Speaker Change: Adjust the loss per share improved by two cents to a loss of three cents [inaudible]
Speaker Change: Gas from Operations was $25 million, compared to $35 million in the prior year period.
Speaker Change: On a trailing 12-month basis, we generated $582 million, a free cash flow, compared to $964 million in the prior year.
Speaker Change: Free cash flow in the prior year period benefited from an outsized reduction in inventory.
Speaker Change: Consistent with our capital allocation priorities, we repurchased $160 million of shares in a quarter.
Speaker Change: We have now repurchased $460 million over the last 12 months and over $760 million since resuming repurchases in 2023.
Speaker Change: Taking a look at the balance sheet, we finished the quarter with a cash balance of $1.24 billion a year ago, an increase of $113 million.
Speaker Change: The increase reflects free cash flow generated over the last 12 months, less $460 million of
Speaker Change: Total debt remains at approximately $2.34 billion with the next maturity in 2026
Speaker Change: Accounts receivable decreased $40 million to $633 million, reflecting a decline in day sales outstanding.
Speaker Change: Our leverage ratio, debt to adjusted EBITDA, improved to 2.2 times compared to 2.3 times a year ago, benefiting from the increase in trailing 12-month adjusted EBITDA.
Speaker Change: We continue to achieve savings under our optimizing for profitable growth program. In the first quarter, we generated $19 million in savings with roughly half-benefitting costs of good sold and the other half in S-GNA.
Speaker Change: We have now achieved $103 million of savings since launching the program in 2024.
Speaker Change: As we look to the rest of 2025, we are increasing our cost savings target for the year to $80 million versus $60 million previously and are on track to achieve total program savings of $200 million by 2026.
Speaker Change: We are operating in a dynamic macroeconomic environment, the significant volatility.
Speaker Change: Given the evolving US tariff situation, we are assessing a wide range of potential scenarios.
Ynon Kreiz: As Anon mentioned, we are taking mitigating actions designed to fully offset the potential incremental cost impact of tariffs on future performance in three key areas.
Ynon Kreiz: Accelerating diversification of our supply chain and further reducing reliance on China's source product.
Ynon Kreiz: Optimizing product sourcing and product mix and where necessary, taking pricing actions in our US business.
Ynon Kreiz: In addition, as we plan for the rest of the year with our retailers, we intend to rebalance promotional activity to drive cost efficiencies while maintaining sufficient support.
Ynon Kreiz: and, as mentioned earlier, we are accelerating cost savings and increasing our 2025 target under the optimizing for profitable growth program from $60 million to 80 million.
Ynon Kreiz: We do not expect second-quarter costs to be impacted by tariffs due to timing of inventory flows.
Ynon Kreiz: Under the current tariff framework, we would expect to see tariff impact or cost starting in Q3 although many of the mitigating actions we outlined will also be in effect by then.
Ynon Kreiz: We are off to a strong start in the second quarter with POS up double digits quarter to date, benefiting from the Easter holiday, and up low single digits year to date with growth both in the U.S. and internationally.
Ynon Kreiz: However, we may see some movement in our gross buildings performance between quarters, starting in Q2 related to direct import shipments as retailers assess their DI trade mix.
Ynon Kreiz: Given the volatile macroeconomic environment and evolving US tariff situation, it is hard to predict consumer spending and our US sales in the remainder of the year and holiday season.
Ynon Kreiz: and we are therefore pausing our full year 2025 guidance until we have sufficient visibility.
Ynon Kreiz: That said, we are maintaining our $600 million share repurchase target for 2025 in line with our capital allocation priorities.
Ynon Kreiz: In closing, our first quarter results were strong, and the second quarter is off to a good start.
Ynon Kreiz: With our scale, resources and capabilities, we are confident about the mitigating actions we are taking which are designed to fully offset the potential incremental cost impact of tariffs on future performance.
Ynon Kreiz: We are well-positioned financially with ample cash and will continue to manage our balance sheet in line with our capital allocation priorities as we execute our strategy to grow Mattel's IP driven toy business and expand our entertainment offering.
Ynon Kreiz: and with that, I will turn it over to the operator for Q&A.
Speaker Change: Thank you, and we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one a second time.
Ynon Kreiz: If you are called upon to ask your question and are listening via speaker phone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Ynon Kreiz: Again, it is Star One, if you would like to join the Q. [inaudible]
Speaker Change: And our first question comes from the line of Arpine Kocharyan with UBS. Your line is open.
David Zbojniewicz, David Zbojniewicz
Speaker Change: Thank you so much for taking my question and thank you for the detailed prepared remarks. You know I wanted to go back to
Speaker Change: sort of the optimism and the encouraging comments you have in the prepared remarks about sort of fully offsetting the...
Speaker Change: Impact of incremental tariffs. Understanding it is very difficult to assess the timing of that, but if you were to sort of outline the roadmap of how you get there, what would that timeline be? And you know, assuming that current status co-host for tariffs, in other words, reciprocal tariffs are paused and China remains where it is. [inaudible] you know, you know, you know
Speaker Change: and also thinking about the fact that we won't do this too much impact on Tokyo's three as indicated, could you maybe give us a sense on the current exposure in dollars for the year to the extent you can, of course, and then have a quick follow-up?
Speaker Change: Okay, hi, Arpine. Let me talk about a couple of questions there. As we said a number of remarks, you know, Q1 was not impacted by tariffs. We don't expect Q2 to be impacted.
Speaker Change: It's really in Q3 that we expect a season tariff impact coming through as it works through the inventory.
and David Zbojniewicz. Thank you.
Speaker Change: You know, in terms of, you know, magnitude, and as we said, the situation is very fluid and a lot of uncertainty around the macroeconomic
Speaker Change: and Barman. So, you know, our planning approach has been to, you know, look at a range of potential scenarios and both upside and downside for Mattel regarding both the tariff and the potential impact on consumer spending and our US sale.
Speaker Change: But what I will say, if you look at the current state with tariffs at 145% in China, 10% rep to world and zero from Mexico.
Speaker Change: The incremental cost exposure this year, relative to our initial planning assumption, would be roughly 270 million dollars.
Speaker Change: Now, from that, that's before you consider any of the mitigating action and there's several of them.
At the Non-Mension in the Remorks.
Speaker Change: We are accelerating diversification of our supply chain and further reducing reliance on China, we're also optimizing that product mix between the sourcing country and the selling market to minimize the tariff impact and we're necessary taking pricing action in our US businesses.
Speaker Change: There's also two additional levers that we mentioned. One is accelerating the cost savings under our OPG program, increasing the savings target to $80 million in 2025.
Speaker Change: and we're also looked to adjust our promotional activity to improve efficiency in the remainder of the year and it's all those actions taken together that are designed to fully offset the cost impact of the incremental terrace.
Speaker Change: That is super, super helpful. Thank you. And then I have a quick pull up, you know, others talk about Indonesia and Malaysia. It's kind of the next frontier for supply chain extension. Thank you, Stephen.
Speaker Change: Mattel, you know, you have been in both of those markets for some time with sizable volume. You know, could you maybe expand on where you see flexibility in your supply chain to transition out of China? Is it a matter of incremental tooling investment in factories that you already operated and can they handle that much incremental volume? What are the main bottlenecks, if you will, and kind of sort of urgent supply chain needs that you have at the moment and how you're approaching them and you did have helpful example on this.
and India on Uno. But anything of the sort that you could sort of give investors a little bit more color would be very helpful.
Speaker Change: Yes, hi Arpine, as you know, we've been on this journey for seven years [inaudible]
Speaker Change: This has not happened overnight and the goal was to establish a flexible modular resilience supply chain that is that is balanced and diversified by geography and by the product that we make
Speaker Change: Today, we saw a product from a combination of owned and operated factories, and third party vendors in seven different countries.
And that gives us very balanced footprint.
Speaker Change: with significant flexibility. Including, you know, we talked about one example is the ability to do
Speaker Change: Product is in high demand between more than one country. So with that our supply chain is
Speaker Change: that gives us not just the ability to produce quarterly product at affordable prices, but we can react and respond and address and take opportunities of opportunities that open up in the marketplace.
Speaker Change: Further, a given, the terrorist situation. And to give you more context and you may know some of that you know we talk about the fact that 80% of poor production globally is from China. [inaudible]
We index at less than half of that [inaudible]
In terms of product coming from China for Mattel [inaudible]
Speaker Change: In terms of US imports less than 20% of our global production come from China and we're trying to reduce that to below 15% by 2026 and below 10% by 2027 [inaudible]
with additional contingency plans to accelerate that, if required.
Speaker Change: So, putting all of this together, given the strength of our supply chain, we don't expect only to manage to this volatile period but to strengthen our standing as a trusted partner for [inaudible]
Speaker Change: and further strengthen our standing as a trusted partner for parents and families.
Very helpful. Thank you much. Thank you
Speaker Change: Andrew, next question comes from the line of Stephen Laszczyk with Goldman Sachs. Your line is open.
Speaker Change: Hey, great. Thanks for taking the questions. Maybe Ynon on mitigating efforts on pricing. I was curious if you could talk a little bit more about what gives you confidence and your ability to pass along pricing to some of your largest retailers. I think there's some concern out there that retailers might look to push back on pricing, perhaps putting the margin of companies like yours at risk. I'm curious that the conversations you're having there. And then second, maybe for Anthony on the demand side, I know it's hard to predict, but we'll be curious.
Speaker Change: Can you just talk a little bit more about the range of outcomes you mentioned that you're considering on the demand side? Should Paris remain at current rates? Are there any bands of outcomes we should be thinking about from our side of current rates, stayed in place for the full year? Thank you Thank you.
Speaker Change: We work very closely with our written partners. This is a personal relationship that spans decades.
Good working collaboratively across categories, countries and different situations
Speaker Change: We always have the consumer in mind when we talk about pricing and we make sure that we offer great product and experiences with the right balance of quality and value at affordable price points.
Speaker Change: In this particular situation, we're taking a strategic approach. We talk about the fact that under the tariff scenarios that we're looking at, we expect that between 40 to 50 percent of our product in the U.S. will be priced at $20 or less.
Speaker Change: And for that matter, the number one toy item in the world, the Hot Wheels basic car, we said for just over a dollar.
Speaker Change: So, we clearly offer a very wide range of offering, and the fact that we have a diversified and flexible supply chain is going to be an important advantage for us, that will help us keep prices affordable for consumers in this period of uncertainty.
Speaker Change: And then the second part of the question is hard to get too specific on the upside and downsides around the potential scenarios but certainly in terms of risk there is the overall macro economic environment and what condition the overall consumer might be in the back part of the year. On the other hand, and as Hennon mentioned, given our unique capabilities and advantages.
Speaker Change: There is potential, you know, upside if there is products shortages generally or, you know, opportunities to gain additional shelf space. So again, a range of opportunities and downsides which fits into our kind of a scenario planning approach.
David Zbojniewicz, David Zbojniewicz, David Zbojniewicz
Great, thank you both [inaudible]
Thank you.
Speaker Change: And your next question comes from the line of Megan Clapp with Morgan Stanley . Your line is open.
Megan Klapp: Hi, good evening, thanks so much. My first question is just more of a clarification for Keeschen.
related to Arpinade's first question on the tariff impact.
Megan Klapp: really helpful, the 270 million, and understand that before mitigation, but I just wanted to clarify the comment about offsetting, fully offsetting the incremental cost.
Megan Klapp: It seems like you'll be able to offset some of that 270 million this year, but actions like moving outside of China will take more time So just wanted to formally clarify that the ability to fully offset is more of a long-term comment, not necessarily a 2025 comment
Megan Klapp: It was specifically a 2025 comment that the actions we detailed are designed to fully offset the cost impact of the incremental tariff
Speaker Change: Okay, great. That's helpful. And then maybe just a follow-up on the guidance based on that as well. It does seem like the decision to pause guidance at this point is driven
Speaker Change: or so by the uncertainty on the demand outlook rather than the cost impact.
Speaker Change: Maybe you could just expand a bit more in terms of how you came to that decision to pause guidance and what exactly do you need to see between now and the end of July to be able to provide guidance again and related to that what exactly you're hearing from retailers in terms of ordering patterns. Thank you very much.
Speaker Change: Yeah, Megan, the way you're thinking about it is correct. It's kind of two parts to it, right? On the direct cost side.
Speaker Change: We have these actions that are designed to fully assess the cost impact.
Speaker Change: Right, and that's where we get into this scenario planning, have a number of upsides [inaudible]
Speaker Change: and downsized. And because of that, we decided to, you know, the pause, the guidance until we have sufficient visibility, right, at which point we'll come back and provide the market and update.
Speaker Change: Okay, and I would add that the situation is still evolving and therefore, you know, it could be that one scenario that we put out today on demand would change within, you know, within a few short weeks. So we do have different.
Speaker Change: Lieberth, and Anthony said planning for different scenarios, but given that volatility and uncertainty, we decided to pause on guidance and continue to focus on mitigating actions and operational excellence.
Okay, thank you. That's helpful. I'll pass it on.
Speaker Change: Get your next question, comes from the line of Kylie Cohu with Jeffries. Your line is open.
Kylie Kohu: He's there. Thank you so much for taking my question. I guess kind of asking the pricing question a different way. How much pricing action do you think would be required at the current care level? And you know anything kind of to that same point is have you done any work on elasticity that you'd be able to share with us. [inaudible]
David Zbojniewicz, David Zbojniewicz,
Speaker Change: It's hard to get too specific on the pricing thing, we are in a working closely with our retail partners and as we...
Speaker Change: We are taking a strategic approach to pricing across the portfolio and have very flexible framework that can quickly adapt, you know, should the tariffs, to the tariffs change.
Speaker Change: And I think, you know, an important, you know, fact that considerate is under the current scenarios we are considering.
Speaker Change: In terms of pricey elasticity, and again this comes back to why we're looking at scenarios it's really you know difficult to say we're going to be in a situation where the entire industry is impacted the competitive set is impacted in that context you can't really rely on the historical traditional pricing priceing studies in that context. [inaudible]
Speaker Change: So, again, we're monitoring the situation, working closely with the retailers and will adjust as necessary.
Speaker Change: Great. Thanks so much for the color. And I guess my follow-up is on inventory levels. You mentioned it briefly, but who are inventory levels looking post the Easter holiday? You also mentioned some timing shifts in between Q and Q3 , but any major changes to like the total number of orders overall. Thank you very much.
Speaker Change: Yeah, so we're in a good spot with inventory, both owned and apt-be teller, our own inventories are where they should be for this time of year.
Speaker Change: Retail, Inventory, they're also at appropriate levels. They are up a little bit versus last year. And that's because of the impact of the slightly later Easter holiday. And as we prepare for theatrical tie-ins.
Speaker Change: Specifically around Minecraft and Jurassic World. So we feel really good about the inventory situation at this point in the cycle.
David Zbojniewicz,
Great.
Speaker Change: Your next question comes from the line of Alex Perry with Think of America. Your line is open.
David Zbojniewicz, Unknown Executive, Jennifer Kettnich, David Zbojniewicz, Ynon Kreiz
Hi, thanks for taking my questions here.
Speaker Change: Um, I guess first just to follow up on, you know, Megan's question from earlier, have you seen any changes?
Speaker Change: and Key Retailer, Buying Behavior, as of late, or changes in holiday order patterns. I think you...
Speaker Change: specifically called out, you know, inability to predict holiday and a couple of the material. So, just wanted to see if you've seen anything yet or it's just, you know, very uncertain environment, which, you know led you to pause the guide. Thanks.
Yes, so we haven't seen any
Speaker Change: Pulled forward, it's notable, we haven't seen any material cancellation. The only thing, you know, we see is in the DI space and DI is a, you know, a smaller portion of our business. We could see some movement in our growth, performance between quarters, starting in Q2 related to, you know, direct import shipments as our retail partners, you know, assess their direct import trade mix. [inaudible]
Gotcha, that's what
Alexander Perry, what it would add.
Is that according to the Toy Association?
Speaker Change: There are some cancellations and delays in shipping and production of products in China, given
Speaker Change: the US tariff situation. As the Tor Association put out in their note is that they estimate that about 96% of the industry is made of small to medium enterprises. Many companies produce their entire inventory in China.
Speaker Change: and so the potentially could be change in the industry dynamics in terms of product that is coming in.
from China, and that is primarily within...
Speaker Change: The companies that are less diversified in terms of their own supply chain, this is something to keep in mind
That makes sense, I guess, just a...
Speaker Change: My other follow-up was just going to be on the 2Q point of style up double digit percent. What's driving that and then how close would you expect sort of? [inaudible]
Speaker Change: You know, POS and revenue to track. I know you have the direct import dynamic going on in the quarter, but just wanted to ask, you know, how we should think about top line in the second quarter in light of the, you know, POS commentary gave thanks.
Speaker Change: Yeah, I think the first question, you know, I mean, you know, we do have...
Several important.
Speaker Change: In a world where we can benefit from our strength and competitive advantages, we do believe.
that will not only manage to this volatile period. David Zbojniewicz, David Zbojniewicz,
to consumers and families worldwide.
Speaker Change: And just to clarify the point on POS, so for the first quarter, our POS is up low single digits, and then in April , so quarter to day we said we're up double digits. That's primarily driven by the Easter timing, Easter holiday timing. Thank you very much.
Speaker Change: When you look at your day through April , which includes the user holiday in both periods where I upload single digits
Perfect, really helpful. Best of luck going forward. Thank you very much.
Thank you. Thank you. Thank you.
Speaker Change: And your next question comes from the line of Eric Handler with Ross Capital, your line is open.
Hi, good afternoon. Thanks for the question.
Could be the swing factor with direct imports. [inaudible]
Speaker Change: Now it's hard to quantify the impact given the volatility in the market right now.
Speaker Change: Okay, and then secondly, as I think about your most profitable product lines, I imagine that's Barbie and Hot Wheels. Where are those products manufactured, and if you have to start moving things around, is there any risk of disruption with those product lines?
Without getting too specific, you know, you know,
Speaker Change: We manufacture, as you know, diecast cars, fashion dolls, owned and operated plants, we have a significant competitive advantage and cost advantage and the majority of those two product lines are manufactured outside of China.
Great, thank you.
Survivor.
Speaker Change: And your final question comes from the line of Chris Horvers with JP Morgan. Your line is open.
Thanks very much, and congratulations, Anthony, on your last
conference call going out with the bang for sure.
Speaker Change: So, my first question is on the gross margin, where did that come in relative to your expectations? It's interesting to hear you talk about, you know, upside and downside scenarios. You know, did gross margin come in better than expected? And I guess if you would ever cast this year, would you have changed the gross look?
If we didn't have tariffs.
Speaker Change: Yes, so the first quarter was a little bit better than we expected. Very difficult to answer the second part of your question given the evolving tariff situation that's going on. Thank you very much.
Speaker Change: Understood, and then a two-parter. Can you share with us what percentage of your products were under $20 last year?
Speaker Change: and then, as you think about the potential disruption of the many independence in the toy industry, when would you expect to start to hear from retailers that, you know, hey, Mattel, we need more product from you because we need more shelf.
Speaker Change: You need to take up more shelf space. Thanks very much Thank you very much.
Yeah, I would say, you know, the...
Unknown Executive, Jennifer Kettnich, David Zbojniewicz, Ynon Kreiz
Speaker Change: The reigns that we have in our, you know, portfolio, everything from a, you know, single die cat hot wheel to a Barbie dream house. So we're very well positioned to provide, you know, consumers quality products again across a wide range of affordable price points.
Thanks very much [inaudible]
Thank you, Chris Welp [inaudible]
Anthony, thank you again.
for five years of excellent work.
and contribution and partnership on behalf of the team.
Speaker Change: The board and all of our investors and analysts that I'm sure enjoyed quite a little video.
Speaker Change: Thank you. And thank you everyone for your questions today. I just say in conclusion, we had a strong quarter.
Speaker Change: Optu, a strong start in the second quarter with growing consumer demand.
According to date, up double digits.
Speaker Change: Our Bradford Folio Flexible Supply Chain and Balance Sheets are clear advantages from Mattel.
Speaker Change: and I hope this came true on this call in terms of our ability to respond and adapt.
Speaker Change: with agility and strong execution. We're very well at managing complexities and we expect to strengthen our competitive position in this process.
Speaker Change: And family, I would say that importantly, we are very committed, as we said on the call to the uninterrupted supply of quality products at a wide range of affordable price points for children and families around the world, and remain an important part for retailers and families.
Speaker Change: And now I'll turn it back to the operator. Thank you.
Speaker Change: Thank you. Ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.
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