All right, great. Thank you, everyone, for joining us this morning. Welcome to the GS Global Retailing Conference. For those who don't know me, my name is Stephen Laschick, and I'm the Lead Entertainment Analyst here at Goldman Sachs. To kick off this morning, we're excited to welcome to the conference this year Ynon Kreiz and Anthony DiSilvestro, the CEO and CFO of Mattel. Thank you both for being with us today.
Thank you for inviting us.
Fantastic. Ynon, I wanted to start off with the news from yesterday about you making some organizational changes in the company aimed at enhancing Mattel's global brand management strategy and accelerating the growth in your entertainment business. Could you maybe start off by talking a little bit more about these changes, the expected benefits of the new structure, and then ultimately how you envision this strengthening execution across your portfolio?
Sure. This is really about our continuous evolution from a toy manufacturing company that we used to be to become an IP company, from making items to managing franchises. As we continue to strengthen our brand management capabilities, we're evolving our leadership organization. The person we appointed as the Global Head of our Brands Group, Roberto Stanichi, up until now was running the vehicles category, including Hot Wheels, and in many ways embodied the full strategy for us in terms of capturing full value from our IP and growing outside of the toy aisle. As you know, Hot Wheels, specifically in the vehicles category as a whole, had an incredible run. Hot Wheels is on track to achieve its eighth consecutive record high year after 58 years on the road. Just an incredible performance.
Really bringing to bear the Mattel playbook of brand purpose, cultural relevance, consumer-centric innovation, and franchise mindset. We're also integrating our marketing activities. This is to achieve more efficiency and more scale in a world where it's getting harder to reach the consumer. For Mattel, demand creation is a competitive advantage, is one of our strategic pillars. We continue to improve and strengthen our capabilities in this very important area in terms of reaching and engaging fans, especially young age. It's harder to do these days. We have the capabilities, resources, and expertise to stand out in a crowded market. Roberto is an expert at that. He will also lead that part of the company. It's been a very exciting journey for Mattel. We continue to evolve as a company. The biggest cultural shift for Mattel was to realize that people who buy our products are not just consumers.
They are fans that have an emotional relationship with our brands. When you realize that people who engage with you are fans and that it's a very different relationship and a very different dialogue, this informs our strategy and how we continue to grow and expand our business. This is on top of everything we do within the toy aisle. There are a lot of opportunities for Mattel on the toy side of the business, and I'm sure we'll talk about that. The exciting part is to grow beyond that in highly accredited business verticals in the entertainment space in terms of content, franchise management, consumer product, location-based entertainment, parks, and of course, digital.
That's a great overview. I certainly want to get back into discussing how you're viewing each of your key brands. Maybe first, Paul, to touch on the topic that's dominated investor conversations this year, tariffs. The industry continues to face some meaningful tariffs, 20%- 30% across most of the regions that you operate in. Maybe you could just spend a little bit of time talking about Mattel's strategy to addressing tariffs and your confidence in your ability to mitigate some of the P&L impacts of tariffs this year into next.
Thank you for the question, Stephen. It is certainly top of mind for us. I am very confident that we are going to be able to offset the full cost impact of the tariffs in 2025. We have a variety of levers, and we're experts at managing this type of headwinds. We have the operational agility to do so. We're doing this in three ways. Number one is we have the flexibility and have been working on fine-tuning our supply chain and the sourcing, the country of origin of our plants and our products, number one. Number two, we're managing product mix as well. Number three, in the U.S., we are taking selective pricing. Of course, this is on top of the already strong program that we have from an OPG perspective, optimizing for profitable growth.
You might recall that we have said that we have increased our target from $60 million- $80 million this year to get to the $200 million target by 2026. All of those actions that we're taking will allow us to fully offset the cost impact of the tariffs in 2025. I feel good about the journey that we have going forward as well, leveraging those tools that I mentioned. We have the expertise, and we'll continue to do so.
On your second quarter, Paul, you called out some of the timing-related dynamics around tariffs that played out earlier this year as one of the reasons we saw a little bit of a slowdown in revenue year to date. Could you maybe talk a little bit more about that timing dynamic and what some of the benefits are now of being further along in the year? To what extent would you expect the back half of the year to make up for some of that softness that we saw in the second quarter?
Yeah. Stepping back, the industry is healthy. The industry is strong. We are seeing strong Mattel POS in the first half, and so far, in Q3, quarter to date, we see positive POS in international and in the U.S. as well. That's important. We are employing consistent strategies throughout the world, and as you saw in our Q2 results, we are growing very strongly in international. We had tariff-related disruptions that mostly impacted the ordering patterns of our retailers in the U.S. We do not believe that we have lost any consumer sales. We will catch all of those by the end of the year. We have seen certainly some timing shifts in the quarter. In the second half of the year, we certainly see a significant shift more towards Q4 versus Q3. That's as a result of the disruption that we have seen from an ordering pattern perspective.
The consumer is there. The expertise and the partnership with the retailers to push the products through our value chain is there. That's what we've been doing for decades and will continue to do so in 2025 and beyond.
If I may add to that, where we stand out as a company is with the strength of our brands, the quality of our product, and a very strong supply chain, which is something that we have evolved over the last few years. This didn't happen overnight in response to the challenges that we're seeing right now. We have continued to evolve and strengthen our supply chain. We make product today in seven different countries in a combination of owned and operated factories, as well as third-party suppliers. We have significant flexibility and agility within the system, which is exactly how we designed it. You cannot foresee what challenges may come your way. Having a flexible and modular supply chain is a clear advantage that we are seeing playing out in our favor this time.
That touches on my question I was going to ask, which was, I feel like there's this debate amongst the investor community on to what degree some of this revenue timing dynamics is structural versus time. It sounds like what you're saying is Mattel has a structural advantage in terms of the brands and the logistics.
Absolutely.
Ynon, maybe just to take that conversation a little bit further, you also mentioned, despite the macro uncertainty, your conversations with retailers this year have remained quite constructive. Any more color you can provide as we look into the back-to-school season on how those conversations have progressed and just general health of the retailer at the moment?
Yeah, we were talking about general macro dynamics in the market overall. This is not about Mattel and not about toys. These are patterns that we've seen across the macroeconomy. As it relates to our relationship with our retailers, these are very constructive toys. The category is very strategic to retailers. It drives foot traffic. It's experiential. Prices are affordable. We know that toy shoppers spend more time and have a bigger basket at retail. Retailers are very motivated to drive toy sales, and the relationship is very strong and very aligned. This is a strong partnership that goes back decades. We work closely with our retailers to make sure that we have the right product at the right time and the right amount on the right shelf at the right time of the year. This is what we do. This is our expertise.
This is our specialty, regardless of one challenge or another. Of course, you need to know the consumer. You need to have great product. You need to continue to innovate and find ways to reach and engage fans to bring them into the toy aisle and continue at the same time to expand in omnichannel retail in terms of online and remote shopping. We do all of that and continue to work collaboratively with all of our retailers around the world. As a reminder, we sell product in 500,000 stores globally, 500,000 stores. This is a very large operation that is highly efficient and very high-performing.
In terms of getting product on the shelf this year, how do you expect the retailer stocking and restocking dynamic to differ this year, given what we've seen in tariffs play out so far relative to a quote-unquote "normal year" that you would see play out? How is Mattel leaning into and addressing some of the changing in stocking?
We talked about shifting ordering patterns from direct import to domestic shipping, which does push out some of the revenue recognition. The most important point to remember is that consumer demand is healthy. POS has been positive across the industry and for Mattel for the first half of the year. As Paul mentioned, also in the beginning of the third quarter, toys as a category has seen one of its highest growth first halves in a long time. In fact, according to Circana, in the first part of the year, it's been the fastest growing sector within six different sectors they track, from video games to fashion to consumer goods, restaurants, and other electronics. Six different categories that they track, toys have been the fastest growing in the first part of the year.
We are seeing positive consumer demand for the industry and positive consumer demand for Mattel in the U.S. and internationally, every single market so far. When that is in place, this is foundational. You know that ultimately, if there is consumer demand, retailers will aim to fulfill it. That is the most important really factor to look at at this point in a period of disruption and uncertainty.
Paul, maybe to touch on another factor that will come into play later this year, pricing. Mattel took pricing earlier this summer across part of its portfolio as needed in accordance to your mitigation efforts. I'm curious how you've seen consumers react to the price increases so far. As you look out over the course of the holiday season and into next year, how you would expect the consumers to digest some of the price increases we're seeing out there in the marketplace.
Certainly, pricing is one of the levers that we have used to mitigate some of the cost impact of the tariffs. We did it very strategically in the U.S., and with that, those pricing actions are behind us. We do not intend to take any further pricing in 2025. As I said, this is one of the levers. We will continue to leverage our supply chain flexibility. We will continue to maintain our costs, control our costs as we always do. When it comes to the reaction that we have seen, it's probably early to say. We're being watchful. We're seeing how the consumer is behaving. As Ynon said, we see POS continue to be strong into Q3 as well. We're going to be flexible with our marketing strategy, with innovation that we will bring to life in the second half. We're excited about what the end-of-the-year season will bring.
Ynon, maybe just to build off that, toys won't be the only category to see price increases this holiday season. Curious, as you maybe take a step back and look at the retailer landscape and the consumer landscape more broadly, how you feel that the consumer will perform going into the holiday season, maybe how toys fit into that, given the broader price increases that we'll see.
You know, no one has a crystal ball. The trend into the year so far has been positive. We know that people, families, parents, kids will always be excited with quality product, especially when they're tied to known and trusted brands. This is what we aim to bring to the table. We continue to innovate. We continue to develop incredible products, play systems, and grow the reach with new touchpoints for our brands beyond the toy aisle. This is not just about strategy within toys. This is taking brands that are cultural, that are important, that have a large built-in fan base, and extend that beyond the toy aisle. This is a key part of our strategy to grow into highly accredited business verticals in the entertainment space.
We talked about a very exciting film slate with two movies coming out next year, "Masters of the Universe," in partnership with Amazon MGM Studios, and "Matchbox" in partnership with Skydance Media and now Paramount Pictures. Both really, really exciting movies. I've seen the initial cut. It's still early, but already a lot to be excited by with the incredible cast. It should be fun to watch. There is a slate of movies beyond that. We recently announced that Jon M. Chu will direct the Hot Wheels movie that we are producing with Warner Bros. Pictures and J.J. Abrams, which is very exciting. Also a Barbie movie, an animated Barbie movie that is being developed by Chris Meledandri and Illumination at Universal Pictures. Chris Meledandri is, you can say, the most successful animated filmmaker ever. He is now making, developing the Barbie animated movie.
This is a very exciting, yet another exciting development in our film slate. Of course, it's not just movies, also television, parks, mobile games, both self-publishing that we are now developing and accelerating and expect between an average of two self-published mobile games a year. Continue to grow with digital platforms such as Roblox and others. Find more ways to reach and engage fans with our brands and great product and experiences. That's a key part of our strategy beyond the toy business.
Building on that content lineup, maybe to touch on some of the power brands and some of the drivers of the power brands over the next couple of years. Ynon, I think we're two years post the Barbie movie, which was a fantastic success for Mattel. More broadly, it brought a lot of attention to the brand. What do you see as the next steps for the Barbie brand from here? How do you see innovation and potential movie sequels? You mentioned the animated Barbie movie coming about, but maybe a live-action sequel at some point down the line fitting into the strategy.
Barbie is such an incredible brand that never sits still. Barbie is one of the most known brands in culture, in modern culture. It's not just a toy. It's a pop culture icon. We could not be more excited about Barbie's development, both in terms of product, with more innovation, more breakthrough innovation, extending the lines, developing exciting packaging, and continuing to evolve the brand in new and exciting ways. Of course, outside the toy aisle, in content and different experiences that are coming your way, it will be another way to engage and create excitement for fans. What we're also seeing is a growing adult fan base, adult collector fan base. This is a key part of our strategy. It's what's also driving the industry. The industry is being driven and lifted by adult collectors.
This is part of our own strategy, especially with our power brands, where you have such a large built-in fan base of older people that used to be fans when they were kids and now are grown up and continue to engage with our brands. Barbie is benefiting from that as well. Expect more innovation in 2026. We will see improving trends in 2025, and then more exciting product coming out in 2026. The animated movie we talked about, we haven't said anything about a live-action movie. Of course, our goal is to develop film franchises. We've always said that this is not just about Barbie, but in general, when we make movies, our goal is to create film franchises and continue to develop that over a period of time.
Are there any upcoming catalysts you'd point investors to more broadly across your Doll portfolio as we look into 2026 and beyond, where you could start to see this content flywheel start to materialize and maybe an acceleration in revenue growth?
Sure. Within the Dolls category, we have very exciting brands that are doing really well and growing. American Girl, which had three consecutive quarters of growth, is returning to profitability and on a great trajectory. Very excited about American Girl, continued development. Monster High, which is expanding its global rollout, is a brand that was a huge business for Mattel about 10 years ago. It came and went. We relaunched it now with support of content on Nickelodeon and YouTube, with a movie in development right now. There is a lot more to come around Monster High. There's Polly Pocket, which is having also very good momentum with a lot of innovation, a bit of nostalgia, but more currency and cultural relevance. Disney Princess is an important part of our portfolio. This is a brand that we treat as our own. Very proud about that partnership.
We're seeing also collaboration between Disney Princess and American Girl. We find ways to excite and delight fans through cross-collaboration between our brands and very exciting executions. As I said earlier, continuing to tap into the adult collectors that have an emotional relationship with our brands, that is something we're tapping into with a great product that is catering for that segment, with curated product that we sell on Mattel Creations. This is our own direct-to-consumer website that is targeting adult collectors, different price points, different packaging. All in all, just another form of engaging fans in new ways outside of the traditional form of retail.
Hot Wheels continues to see impressive growth and gets on track for another record year. This is just the brand that keeps on growing. What drives further growth from here in the Hot Wheels brand? How do you get it to the next level?
We feel that there's so much more runway for Hot Wheels. As you said, notwithstanding the fact that we are on track for an eighth consecutive all-time high, record high for the brand. It is about product innovation, expanding not just the product line itself, but also the play system. We're introducing this year a new track set that will, in many ways, completely reinvent the play pattern of connecting and attaching the tracks that will be very easy to do with one hand and also for younger kids. As successful as the current tracks have been, this is a whole new level of innovation. We are also seeing very exciting partnerships with brands like F1 and Ferrari, which is another form of growth.
We're launching more games, mobile games, video games, which is a different form of engagement, but clearly a play pattern that lends itself so perfectly for this brand. A movie that is in development, we talked about that, produced by J.J. Abrams and directed by John Chu, continuing to tap into the adult collector, where we see incredible engagement for Hot Wheels. I'll give you one interesting statistic, which is Hot Wheels, the basic car, we sell for $1.25. This is the number one selling item in the industry, the number one selling toy in the industry. We also sell a Hot Wheels collector set in partnership with Daniel Arsham, a very known artist, for $700 on the Mattel site, Mattel Creations site. That variety of offering and price points is maybe the best way to describe the breadth of this brand.
Last but not least, we just launched this summer a building set product, the Hot Wheels collector building set, which is off to a very promising launch, very promising start. This is a new form of innovation for us. Outside of the traditional diecast category, this is in building sets. It's off to a great start. We'll see how far it goes.
Do you feel like there's any learnings or best practices from the Hot Wheels brand and how that business has been run over the last five, ten years that you feel like might be applicable to the rest of the brand portfolio, perhaps across your Doll portfolio, Fisher-Price and Mattel, their preschool, the brick line that Mattel has?
Yes, I think this is going back to your earlier question about our organizational structure and how we think about brand management.
In many ways, Hot Wheels does represent in the best possible way our playbook and how we take a brand that has been around for 58 years and started as a toy, as a die-cast vehicle, and continue to evolve and reimagine what it represents, what is the relationship between the brand and the brand's fans, and the evolution of the play pattern and the play system from an item to an entire system of play, garage, tracks, and interaction between different parts of the portfolio, all the way to content and games, from television to short-form content or movies, big live action, theatrical movies, continue to evolve in how we market the brand with the tours that we organize around the world, with the Monster Truck live ad for live events that we organize around the country that continue to grow and evolve.
You continue to find more touch points, more opportunities to engage fans and reimagine what the brand represents. It really is about tapping into car culture. This is not about selling an item off a show. It's how do you embrace car culture. We're always proud to say that we actually own and run the number one selling car in the world. We make hundreds and hundreds of millions of cars a year. With new different sizes and different capabilities that we bring to the table, we believe that there's still a lot of runway for the brand to continue to grow and evolve and reimagine new forms of play.
Fisher-Price, really the entire infant, toddler, pre-school category more broadly has faced some challenges in recent years. Just curious to get your updated take on maybe why you think that's been the case. Looking ahead, opportunities to return the category for you to growth over the next couple of years, what does that strategy look like?
Fisher-Price is the number one brand within the infant, toddler, and preschool category. It's been around for over 90 years. It's actually older than Mattel and is a very trusted brand that parents recognize as something that they can relate to. We invest heavily in developing products that stand up to the highest level of innovation. The Fisher-Price brand has been stable over the last six years. What declined within the category has been the preschool entertainment, which is a volatile part of the category driven by brands, and two lines of business that we've exited proactively, baby gear and Power Wheels. These lines have been less productive for us in terms of profitability. We have been exiting these parts of the category as a whole over the last few years.
This year, 2025, will be the final year where we're going to see major impacts of this strategic exit of those two lines. As a whole, we are very positive about the category. The Fisher-Price Wood, the Wood line, is off to a very promising start. We expect that to continue to grow and evolve. Little People is a thriving brand that is seeing its own moment in culture, way outside of the preschool category or the infant, toddler, preschool category, with adult collectors and a growing fan base. We are very confident about the roadmap for Fisher-Price as a key leading brand to Mattel. The entire category, as we strengthen our capabilities with more innovation, more ingenuity, and evolving the play pattern for young kids with a lot of quality that we inject into the product line.
Before I get to the margins and capital allocation, Ynon, one more question for you just on the content slate on the partner side. The toy-addict content slate this year on the movie front has been much improved versus years past, coming out of COVID, coming out of the actors and writers strike. We've had Minecraft, Jurassic World. This year, you have The Wicked movie coming in, sequel coming in in the holiday season. How important is the return of the toy slate for Mattel? As you look at how the business and the slate stacked up going into this holiday season, how does that compare to last year? To what extent do you think it will be a driver of growth?
Yeah, the return of toy addict movies is, of course, a positive for the industry. It brings buoyancy, not just to the actual movies or the specific categories that correspond with the movies, but to the industry as a whole. It is good to see that theatrical movies are playing an important role, but also movies on streaming platforms actually are seeing a lot of engagement. The K-pop has done really well for Netflix. We are seeing cultural phenomenas happening not just around the theatrical releases, but also on streaming platforms. This is a good thing. We expect that to continue to be a driver for the industry, a driver for Mattel.
This is where we excel, in that we are playing both in our own domain, our movies that we are turning into exciting theatrical releases, but also as a trusted partner for the major players, the major entertainment companies that release big movies that trust Mattel to create exciting products and leverage our capabilities to offer exciting product lines tied to these movies.
I want to pivot to margins, Paul. You mentioned earlier accelerating cost savings, $60 million- $80 million for this year, along the program of operating for profitable growth. Beyond these cost savings, what do you see as the key levers for growth in margins over the course of 2025 into 2026?
If I step back and look at our trajectory from 2017 to now, we have accomplished impressive performance. Operating margins increased by 14 points, from negative to almost 14 points. Gross margins up 13 points, close to 50%, around 50% now. We have optimized our SG&A 300 basis points. We have optimized our A&B 400 basis points. That is in our DNA. That is exactly what we do, and that is what we should continue to do, particularly now enabled by the supply chain efficiencies and that culture of we control our costs, we control what is controllable. We will continue to do that. The proof is in the past, and we will continue to do that. We see ample opportunity to continue to optimize our margins. That is why I feel confident about rendering our guidance today.
I talked about the many factors that give us the confidence that we will be landing in the right place from a top-line perspective and also from a profitability perspective. Very confident about the future based on the past as well.
Last question on capital allocation, perhaps for the both of you, just in terms of thinking about reinvesting in the business and managing capital returns, you have the share repurchase program that's currently out there. Where do you see opportunities, first to reinvest back into the business? Second, as you think about deploying some of the excess capital that you have, your balance sheet's in a fantastic spot. Where do you see opportunities to do so?
We are a growth cash generator. We have also seen a significant turnaround in that regard, and we have a strong balance sheet as well. Priorities from a capital allocation perspective are very clear, and we will continue to invest in our business first and foremost. You see that manifesting itself in both the CapEx that is needed to continue to expand and grow, for example, the vehicles segment, but also invest, although it's not CapEx, it's P&L as well, in digital gaming and in other parts of our growth strategies. Importantly, share buybacks. You have seen that from 2023 up to now, up to Q2, we have repurchased $813 million, and we'll continue to be active as we speak. That's about 14% of our market cap.
With the strength of our balance sheet, with the cash flow generation, we will continue to make the right choices for value creation for our shareholders.
I would just add that we are today in a place where we have arguably the strongest balance sheet we've ever had in terms of whether it's leverage ratio, cash generation, and overall continued focus on managing a strong, resilient balance sheet that gives us flexibility. This is something we intend to continue to maintain. It's an important feature to have a strong balance sheet. Buying back shares is our best use of cash today that we see in front of us, given what we see as a big gap between the intrinsic value of the company, not just the history, but the potential of where we're going from here relative to the share price. This is our best form of investment at this point.
As a company, we are focused on maintaining a strong balance sheet that will continue to give us flexibility to execute our strategy and a key part of what we do.
It's a great place to end. Ynon and Anthony, thank you very much for joining us today.
Thank you.
Thank you.