Okay. Good morning, everyone. I'm Drew Crum. I cover leisure for Stifel. We're gonna kick things off this morning with Mattel, one of the largest toy manufacturers in the world, featuring a portfolio of iconic brands, including Barbie, Hot Wheels, Fisher-Price, among others. Joining me on stage, I'm pleased to welcome the company's CFO. Actually, welcome back, company CFO, Anthony DiSilvestro. Anthony, good morning.
Good morning.
Good to see you.
Thanks for having us here.
Yeah. You know, let's start at a macro level. So entering 2024, most forecasts called for another down year for the toy industry, right? From your perspective, what are the contributing factors behind what's anticipated to be another down year? You know, I know March into early April seemed to outperform. Has your company or has your view on the year changed in any way?
Again, thanks for having us here today. Look, let me provide a little bit of context to this question. Because I think the idea is that longer term, the toy industry has grown, and we expect it to continue to grow into the future. And I think if you go back a few years and look at the period 2019 to 2022, actually through 2022, the industry grew 25%, right? And obviously, it had some impact, you know, from the pandemic. And then in 2023, it did decline a bit, but still up 17% compared to 2019. And we expect it to be down a little bit in 2024, but not to the extent it was down in 2023. And there's a couple of factors, you know, to consider.
You know, one is there's been a generally a lighter toyetic theatrical slate. You know, part of that relates to the, you know, strikes that happened in Hollywood. And the other impact is a shift in consumer spending patterns, post-COVID, back to experiences and services, and less so on products. And we see both of those kind of waning as we go through 2024 and look to, you know, 2025. And, you know, for Mattel, you know, we expect to outpace the industry in 2024 and gain share. And as we look to 2025, we expect industry trends to improve and for Mattel to be able to grow both sales and earnings as we go into 2025.
Okay. And just to—you know, you mentioned the shift in consumer spend. How would you assess the health of a Mattel consumer? And, you know, as a follow-up, you know, toys historically have been a fairly defensive category, but if the economy were to worsen, how do you see demand holding up for the category?
Yeah, good, good, good question. I mean, our view of the, you know, the economy, you know, more generally, is it's in relatively good shape. I mean, inflation has moderated, not to the extent we all hoped for, right? We'd love to see it come down a little bit more, for interest rates to come down. But, you know, the economy continues to grow, employment levels are strong. I think there, if there's one concern generally, it's with the lower-income consumers that are under a bit of pressure. But I think when you look at the toy industry, you know, spending is holding up, right? Year to date, the toy industry is down just slightly. And we're, you know, we're generally in line with the industry.
So in terms of, you know, how things are unfolding, it's pretty much, you know, how we expected. We do expect to achieve our full year guidance and can reiterate that today as well. And I think, you know, the fundamentals of the industry, you mentioned it, it's fairly resilient in challenging economic times. And that's because, look, this is a very strategic category for retailers. It drives traffic, covers a broad array of price points. You know, toys are an important development for children. Parents will prioritize spending, you know, for their kids. And I think during those challenging times, well-known, trusted brands like Mattel, right, we're very well positioned, you know, to succeed.
The other thing I would point out is our product portfolio covers a multiple, you know, of price points, from $1.25 for a Hot Wheels to a $200 Barbie Dreamhouse. So, you know, we can cater to those, you know, consumers that are looking, you know, for value. So again, we are, you know, well-positioned, and I think we're in a good spot.
You mentioned retailers viewing the category as strategic. You know, there's always a considerable amount of focus on retail inventory. How would you characterize your retail partners' support for the segment? Are you anticipating any material changes going forward, and if so, how or what?
Yeah, I mean, retailers love the toy category, right? It's strategic for them. It drives foot traffic, whether it's brick-and-mortar or whether it's, you know, online. And as it relates to retail inventory movements, you know, we don't really foresee any significant changes ahead. And if you look back to, you know, 2023, we did have a situation that we had to deal with, right? So, we made significant progress during 2023 in getting retail inventory levels down. We ended the year down high single digits, both in dollars and weeks of supply. You know, but that said, and despite the progress, we came into 2024, slightly elevated. And, you know, most of this was corrected in the first quarter of 2024. So, you know, we think we're, you know, pretty clean, and that-...
Retail inventory levels are now at appropriate levels to support, you know, the business, you know, going, going forward. You know, what that means for us in terms of gating, we're pretty much back to the historical trends of 35% of our gross billings in the first half-
Mm-hmm.
65% in the second half. Look, there's always gonna be some volatility on a quarterly basis, depending on the timing of shipments. But as we, you know, pull up and look at, you know, the outlook for, you know, 2024, you know, we do expect that our shipments will outpace POS. You know, POS is expected to be kind of flat, but when you look at retail inventory movements year-over-year, it should be a little bit of a tailwind-
Mm-hmm
... in 2024. So that's, you know, factored into our guidance, which is to, you know, achieve net sales, you know, comparable to last year on a constant currency basis.
So you kind of hit on my next question as it relates to POS and shipments, but how do you expect that to progress as you move through the year? You obviously have a difficult Barbie comp in the third quarter. You know, you mentioned retailers kind of getting back to those historical trends during the holiday period. How do you foresee the POS and shipments tracking as we move through the year?
Yeah, I think it, you know, it starts with the overall industry context. You know, as I said a couple of months ago, we do expect the industry to decline a little bit-
Mm-hmm
... but to a lesser extent than last year. You know, we expect to outpace the industry and gain share, and in fact, that's what's been, you know, happening. We've gained share in dolls, we've gained share in vehicles, we've gained share in infant toddler and preschool. So again, we are well positioned to, you know, outpace the industry in 2024, and then for our POS to be flat. Now, given we're back to historical trends on shipping, given what we're wrapping last year, the retail inventory decline, that should be a bit of a tailwind. And then we've got a headwind, primarily in the third quarter, second half, as we wrap, you know, the Barbie movie comp.
So everything's kind of unfolding as we expected, and as I said, we're, you know, kind of reiterating our full year sales guidance today.
Okay, good. Let's talk about some of your brands, maybe starting with Barbie. You know, arguably one of the most important brands in the portfolio and a point of interest for investors. Given the success of the film last year, and thus the tougher comp that I referenced, talk about the outlook for the brand in 2024, some of the puts and takes, and beyond this year, the opportunities you see for Barbie, and you know, I think there's a lot of interest in terms of what you do with the film franchise.
Yeah, ab-
Can you address that?
Absolutely. Look, you know, Barbie is an incredible brand, and it's never been more relevant, or connected to pop culture. And, you know, last year, the Barbie movie was an incredible, you know, success. It generated over $150 million of revenue between the direct movie participation, the movie toy sales, and, you know, related consumer products that had an operating income margin of 60% on that, more than $150 million worth of revenue. So, financially, you know, very successful. And as importantly, you know, the movie was a cultural, you know, phenomenon. It, you know, lifted the entire brand, particularly with the adult and collector market. And, you know, Barbie is the number one doll, you know, property, globally.
You know, it's been and continues to, you know, gain, you know, market share. And as we come into 2024, we're gonna celebrate Barbie's 65th anniversary. And, you know, Mattel, you know, knows how to throw a party. And, you know, you can expect to see a significant, you know, new, new product innovation. We're entering, you know, new, new segments with Barbie MiniLand, Barbie Dream Besties. We're gonna push out into the kind of the horse play segment, and all this will be supported with more, you know, shelf space in the second half. We're gonna launch new product targeted against adult collector pop culture fans as well. And you'll see new content on Netflix.
We've announced also a mobile digital game with Take-Two that's gonna launch, you know, later in the year. So a lot of activity happening on Barbie. Again, an incredible franchise, and, you know, we couldn't be more optimistic about the long-term growth potential of the franchise more broadly.
Mm-hmm
... right? Given the success that we've had in 2023.
Got it. Okay. Hot Wheels, your second-largest brand in terms of gross billings, just, you know, talk about the key drivers. It continues to grow, kind of defy logic. You know, where do you see that brand going? And just provide an update on the film, which-
Yeah, I think, you know-
-in development
... Hot Wheels is another, you know, great example of Mattel executing against the playbook, pushing against all the demand drivers. You know, you know, Mattel, obviously, you know, we are the number one vehicles manufacturer globally. You know, Hot Wheels is the number one property in vehicles, you know, as well. And, you know, the beauty of this is, you know, last year was our sixth consecutive record year on Hot Wheels, and we're planning for another. So just, you know, success, you know, on top of success. And, you know, what I would point out is the growth is broad-based, right?
Mm-hmm.
It starts with the core die-cast line and our ability to innovate and continue to grow, you know, that part of the business. You know, we are expanding with adult, you know, collector, and again, expect it to grow, and there's a number of things that we're doing. So more innovation on the core die-cast line, you know, pushing out into the adult collector space, both at retail and through our DTC Mattel, you know, Creations. We're actually continuing to expand distribution globally. And, you know, Hot Wheels is already almost everywhere-
Mm-hmm
... right? But there are opportunities to expand, you know, distribution. We're also pushing out into adjacent sectors like RC and skate, which have been, you know, very, very successful. And, well, lastly, on content, you know, we've, you know, launched Hot Wheels Let's Race on Netflix. Very, very successful, you know, top 10, I think, in 69 markets globally. And it's very, very toyetic, right? So again, that whole kind of full, you know, franchise approach. And then on the movie, we continue to advance the development with J.J. Abrams. No new announcement today in terms of timing, but, you know, that's certainly coming down the track as well.
Mm-hmm.
So again, you know, the Hot Wheels franchise significant momentum, a long period of growth, and I'm very optimistic about-
Mm
... you know, where it goes from here.
Okay. Maybe, spend a minute on Fisher-Price. You know, earlier in the year, you made several announcements,
Mm-hmm
... moves, for the brand. Maybe you can talk about those and the near and longer-term financial impact to the model.
Sure. You know, as you know, Drew, we're executing against the infant, toddler, preschool strategy that we announced at our Investor Day in March. And what we're doing is we're kind of breaking down the business into three parts, right? The first is, you know, we call Fisher-Price the power brand. This includes our core infant and toddler business, as well as the Little People franchise, and the newly launched entry into the wood segment. The wood segment's an $800 million segment-
Mm
... and, we're, we're, you know, we've recently launched into, into that. Now, this Fisher-Price's core business continues to be managed out of East Aurora. We've just appointed a new leader that is gonna run the business out of New York. And we also have, you know, a great capability there in terms of, you know, early child development, so we'll be able to leverage that. And this is the, you know, the lion's share of our category, is that, you know, Fisher-Price business. The second piece is what we call preschool entertainment, and this includes our owned IP, such as Thomas and Barney. Includes our Imaginext line, which is our form factor for bringing action figures for kids.
We also have a couple of power brands. Now, this business was moved to our headquarters in El Segundo, really to leverage our global brand team strength, get closer to our studio partnerships. That transition is complete.
Mm-hmm.
We think we're well to grow the business, you know, from there. The third component is Baby Gear and Power Wheels. These are two segments that we're either exiting or out licensing, given the prospects and given the margin profile of those businesses. Stepping back, you know, Mattel is the number one player in the ITPs, you know, category. Fisher-Price is the number one property, so we, you know, we start from a position of strength. We are celebrating Fisher-Price 94th anniversary, so you can expect to see, you know, significant innovation in the core product line. As I said, we're entering the wood segment. We have new collaborations on Jurassic and Star Wars in this segment. We're broadening the Thomas line. We're relaunching Barney.
So there is a lot of activity. And, again, you know, Fisher-Price is one of our, you know, power brands and very confident that with these strategic changes and focus on those parts of the business that we believe can grow longer term, we feel that we're in a really good spot in terms of Fisher-Price and the long-term growth potential.
Good. Okay. So we, we've covered the power brands. Any others that you want to highlight, you're particularly enthusiastic on? I mean, you know, you love all your brands the same- ... differently, right? It's like your kids, but, any others that you want to flag?
Look, I think, and this gets to one of the core strengths of Mattel, and that's the breadth of our brand portfolio.
Mm-hmm.
Hard to pick, favorites. But I think if you look at the portfolio, you know, we believe, you know, it's one of the most iconic brand portfolios in the world.
Mm.
We have many distinct brands, right, with rich heritage, that can prosper in and outside-
Outside
... of the, you know, the toy aisle. I mean, just think about dolls, the dolls category alone, where we're the, you know, market leader. So in addition to Barbie, we've rolled out, you know, Monster High globally, which is doing well. Disney Princess and Frozen, back in the portfolio, also doing, you know, very, very, very well. And that's before you even think about, you know, American Girl, right? And Enchantimals or Polly Pocket. So a diverse portfolio of brands that we manage... in that, you know, category context.
So we've got the three power brands, obviously, Barbie, Hot Wheels, you know, Fisher-Price, but there's a broad array of franchise brands, you know, ranging from American Girl, Barney or Enchantimals, Imaginext, Little People, MEGA, Matchbox, Masters of the Universe, Monster High, Pictionary, Polly Pocket, Thomas, UNO. I mean, the list goes on, right? And I think, again, it's one of our strength, 'cause these franchise brands, and we call 'em franchise brands because, you know, we, we think there's opportunities in toy and outside of toy, right? So the question is, you know, take these franchise brands and make 'em power brands, right? And I think that's, you know, that's the opportunity, ahead of us.
You know, we consider ourselves a, you know, partner of choice for the, you know, entertainment companies out there. So our relationships on brands with Microsoft or Universal, WWE, or certainly, Disney, where we, you know, manage those brands as if they're our own. And again, a very broad and distinct portfolio of brands.
Good. Okay, so I wanna pivot away from the core toy piece to the non-toy piece, 'cause over the last several years, the company has championed this mantra of becoming an IP-driven toy company, and with that, you have several initiatives and ancillary opportunities. The company spends a considerable amount of time discussing film, television, digital entertainment, publishing, consumer product licensing, et cetera, et cetera. How should the investor community measure success with this part of the strategy? Or maybe asked differently, at what point does the company provide greater transparency around its financial impact?
Yeah, it's a great question. I mean, if you go back to our strategy, right? It's about growing the toy business profitably, and on top of that, right, expanding into the entertainment side and really capturing the full value of our IP across these adjacent verticals. And you named, you know, some of them, you know, whether it's content, either, you know, film or TV, consumer products, digital gaming, location-based entertainment, you know, publishing. And, you know, look, the Barbie movie is a great example of what's... of the potential here for us to expand beyond, you know, toy. But it's not, you know, the only one, and we've been making significant progress across many of these verticals.
We've, you know, added capability with new hires across, you know, whether it's consumer products or digital or content. And, you know, if you kind of click through 'em, you know, Mattel Films is collaborating with, you know, top talent, right, to create, you know, movies that people, you know, wanna see and enjoy. Again, the Barbie movie being a great example. Our television studios, you know, taking our, you know, our characters and bringing them to life, right, on streaming platforms, right, or linear television. Consumer products had a great year in 2023, and, you know, we're, you know, capitalizing on, you know, all that happened around the Barbie movie to extend, you know, that part of the business.
Our digital gaming business really, you know, extends toy into the virtual world and creating, you know, games that, you know, with our IP that people wanna, you know, interact with. You know, location-based entertainment, where people, whether it's adventure parks. And that's an opportunity for people to come and interact and experience our brands in a different way. And then lastly, you know, publishing, where we can, you know, create, you know, stories through print around our brands. So, you know, we don't provide specific financials for any one of those, but what we do say is that, you know, in success, you know, these can be very accretive to our top line as well as our, you know, to our, you know, margin structure.
And look, as we get these businesses, you know, more to scale, we will definitely consider breaking them out in terms of, you know, financial reporting, so we can share, you know, our success with our investor community.
Okay, good. One more from me, and then we'll leave a little bit of time for Q&A with the audience. But kind of looking further ahead, recognizing that you're not providing formal guidance for 2025 at this stage, you know, the company has endorsed both top and bottom line growth for next year. Can you address the source of optimism in your outlook, both for the company as well as the industry?
Yeah, absolutely. And I'll start with the industry, and as I said earlier, you know, we expect the industry fundamentals, you know, to improve. You know, these post-pandemic shifts, right, back to, you know, experiences and services, you know, we see that waning as we go through 2024. And then on the theatrical slate, right, and I think, you know, as we look out, you know, we see this improving, and this gives us confidence that in 2025, we can grow top and bottom line. If you look at the... You know, just looking at the entertainment slate, Moana 2 and Wicked coming out in late 2024.
Mm-hmm.
Another Jurassic movie in mid-2025, right? And we have the, you know, toy rights-
Mm
... to these, you know, properties. You know, Frozen 2 coming, you know, beyond that, a couple years, you know, down the road. So, you know, the entertainment slate and the toy industry, they're important to each other, and we see significant improvement-
Mm
... you know, coming down the pipe. In 2025, we will celebrate Mattel's 80th... we're good at celebrations. Like I said, the 80th anniversary of Mattel, right? So you'll see more in innovation. And, you know, we're well-positioned, right? Our design and development capabilities, our commercial capabilities, our demand creation capabilities give us confidence, you know, that we can compete effectively and gain share. In terms of the, you know, moving down the P&L, you know, our Optimizing for Profitable Growth savings, this is a program we launched earlier this year, targeting $200 million of savings by 2026. And we, you know, we have a very successful track record of identifying and delivering against our cost savings commitments.
It's, you know, really become part of the DNA of Mattel and a very important element of the earnings growth algorithm. And then lastly, you know, we are and have been generating significant, you know, cash flow. And, you know, to date, we've been using that accretively with respect to EPS by, you know, repurchasing our own shares. And in the first quarter of this year, we bought $100 million of our own stock. In the second quarter, we've already bought $100 million worth of our own stock. So that brings the cumulative total since we resumed share repurchases last year to a little over $400 million. So that'll help obviously drive some, you know, bottom-line performance.
But to really, you know, sum it up, you know, we believe the toy industry is a growth industry. Now, it's had some ups and downs recently, but, longer term, it has grown. We expect it'll continue to grow, over the long term. We believe Mattel is well positioned, to compete and gain share, and drive, you know, top and bottom line growth, right? So we've got the toy business, and again, we have the adjacent verticals around capitalizing and monetizing our our IP.
Great. Okay, we just have a couple more minutes left. Any, any questions from the audience? If not, I'll continue. Please, go ahead.
You talked demographics a little bit, and whether that's a headwind to the toy industry or if not, where you offset?
Yeah, I'd say a couple of things. Obviously, we, you know, we see the data around birth rate, but I think there's a couple of things to point out. You know, one is, if you think about the infant, toddler, preschool category, it's relatively fragmented, right? So we do see significant opportunity to gain, you know, to gain share. You know, we see, if you look, you know, globally in terms of economic development, right, and GDP per capita being, again, a positive impact on the industry. And the last thing I'll point out is most of the growth in the toy industry recently has come from the adult collector market, right? So birth rates aside, right? And we think that's, you know, an opportunity, you know, one, for the industry.
We think it's an opportunity for us, you know, as we focus on our adult collector business and the success of somebody like Mattel Creations. But, you know, Hot Wheels, Barbie, Masters of the Universe, all these franchises have a very significant adult collector market, which are, you know, driving a significant part of the growth. So despite the lower birth rates, you know, again, we believe toys is a growing industry driven by these other factors that, you know, we would expect more than offset that demographic impact.
Other questions? Okay, let me ask another one on uses of cash. You mentioned the share buybacks. Where does that fall in the pecking order in terms of priorities for uses of cash, and do you favor share repo over M&A?
Okay, let me just, in the time we have left-
Yeah
... I can kind of go through our capital allocation priorities. I mean, the first to make, is to make investments to drive organic growth.
Mm.
This, you know, is building capabilities in areas like digital or e-commerce. It's making capital investments in areas where we have a distinct competitive cost advantage, like die-cast cars and fashion dolls. And now it includes, you know, we see opportunity to make targeted investments in our entertainment verticals, right?
Mm.
That can, you know, accelerate the strategy and enable us to capture a more significant part of the potential economic upside. So that's one. Two is to maintain our investment-grade rating-
Mm-hmm
... and a leverage ratio in that 2-2.5 times level, you know, over time. Then the third is M&A, right?
Yeah.
These are acquisitions and other corporate development opportunities that can advance our strategy, drive growth, and create economic value for our share owners. And that comes before share repurchases. So the last one, fourth, is share repurchases, a very flexible tool to manage our capital structure. Now, even though it's three and four, right, our actions have been more share repurchase than M&A of late.
Mm.
As I said, we've bought back, you know, over $400 million over the last, I think, 12 months.
Mm-hmm. Okay, I guess we're out of time. So thank you, Anthony, and thanks, everyone, for your participation.
Thank you.