Mattel’s First Quarter 2020 Financial Report

  • First quarter Net Sales of $594 million, down 14% as reported, and down 12% in constant currency, versus prior year. 
  • Gross Sales of $670 million, down 14% as reported, and down 12% in constant currency. 
  • Reported Gross Margin of 43.0%, an improvement of 820 basis points; Adjusted Gross Margin of 43.5%, an improvement of 550 basis points. 
  • Reported Operating Loss of $150 million, compared to a prior year loss of $127 million; Adjusted Operating Loss of $133 million, compared to a prior year loss of $97 million. 
  • Cash Flows Used for Operating Activities of $174 million, an improvement of $19 million.
  • Global manufacturing and distribution capacity largely restored, expect to meet product demand for the second half of the year.
  • Liquidity, including cash on hand and access to $1.6 billion senior secured revolving credit facilities, is expected to be sufficient to effectively manage through COVID-19 disruption and to continue to execute strategy.
  • Withdrawing previous 2020 guidance due to uncertainty related to COVID-19.
  • Mattel dedicated to community support through producing personal protective equipment for medical professionals and providing grants and toy donations.

EL SEGUNDO, Calif.–May 5, 2020– Mattel, Inc. (NASDAQ: MAT) today reported first-quarter 2020 financial results.

Ynon Kreiz, Chairman and CEO, Mattel said: “While the world has been facing the unprecedented health and economic impact of COVID-19, we have been quickly adjusting the way we operate and how we manage the Company. Our top priority has been to protect the health and safety of our people and at the same time mitigate the disruption to our business. I am proud of how our team has embraced uncertainty and change and demonstrated resilience in the face of this challenge.”

“Our work over the past two years to develop a flexible and results-oriented organization is serving us well during this time,” Mr. Kreiz continued. “We remain focused on transforming Mattel into an IP-driven, high-performing toy company and creating long-term shareholder value. Looking beyond the second quarter, with supply chain and retail distribution continuing to improve and markets reopening, we are planning for increased demand for our products in expectation of a much-improved second half and holiday season. We are confident in our ability to navigate through the balance of the year and believe our assets, resources, and capabilities position us well to succeed in the recovery.”

Joseph Euteneuer, CFO, Mattel said: “Our accomplishments over the past two years position us well to respond to changing market conditions. In the first quarter, we delivered significant Gross Margin improvement with our highest first quarter Gross Margin since 2016, despite the COVID-19 disruption. Additionally, the cumulative savings from Structural Simplification, Capital Light, and our additional 2020 actions are expected to exceed $1 billion exiting the year. With our cash on hand and access to our $1.6 billion senior secured revolving credit facilities, we expect to have sufficient liquidity to effectively manage through the disruption and to continue to execute our strategy.”

For the first quarter, Net Sales were down 14% as reported, and down 12% in constant currency, versus the prior year’s first quarter. Gross Sales were down 14% as reported, and down 12% in constant currency. Reported Operating Loss was $149.8 million, compared to a prior year loss of $127.1 million, and Adjusted Operating Loss was $133.0 million, compared to a prior year loss of $96.5 million. Reported Loss Per Share was $0.61, compared to a prior year loss per share of $0.51, and Adjusted Loss Per Share was $0.56, compared to a prior year loss per share of $0.42.

COVID-19 Business Update

Mattel has taken preventative actions to protect the health and safety of the organization and mitigate the disruption to the business. This includes the successful transition to a remote work structure for employees working in 35 countries, the implementation of stringent measures to safeguard personnel at plants and distribution centers, and the temporary closure of Mattel’s American Girl retail stores.

The global supply chain organization has rapidly responded to the frequent and unpredictable changes occurring in various locations where Mattel operates. The team has taken mitigating actions to return manufacturing and distribution operations to near-normal operating capacity, including China, and are taking similar actions in other parts of the world where necessary. Mattel believes operations are on the right path to meet production needs for the second half of the year, leading up to and including the holiday season.

The global commercial organization has also been working with retail partners daily to navigate the dynamic landscape and evolving consumer path to purchase. The team developed and launched new promotions and marketing activation initiatives that were tailored to the new consumer behaviors. Additionally, joint business plans with retailers are being accelerated to compensate for the disruption and adapt to the retail environment, including transition to online retail and omni-channel experience.

The design and category management organizations have been quick to respond to consumer needs and find new ways to engage with Mattel’s brands. The Company recently launched the Mattel Playroom, a free online platform that offers parents and caregivers a centralized resource for activities, expert advice, games, and content from our iconic brands.

Mattel will continue to benefit from cost savings related to the Structural Simplification and Capital Light programs and from additional actions taken in 2020 in response to COVID-19. Liquidity, including cash on hand and access to the $1.6 billion senior secured revolving credit facilities, is expected to be sufficient to effectively manage through the COVID-19 disruption and to continue to execute Mattel’s strategy.

Given the high level of uncertainty around the impact of COVID-19, Mattel is withdrawing its previous 2020 guidance.

COVID-19 Community Support

Mattel is leveraging its expertise, products and resources to support communities, those in need, and frontline heroes. Design teams across campuses are partnering with Mattel’s manufacturing facilities to make personal protective equipment, including 500,000 face shields, for donation to medical professionals. In addition, Mattel launched its “Thank You Heroes” collection, with all net proceeds being donated to First Responders First. Globally, Mattel has given grants to Feed the Children and Save the Children. Domestically, the Mattel Children’s Foundation has donated art supplies, games, and other toys to the Los Angeles Unified School District’s “LA Students Most in Need” charitable effort.

Financial Overview

For the first quarter, Net Sales in the North America segment decreased by 16% as reported and in constant currency, versus the prior year’s first quarter.

Gross Sales in the North America segment decreased 17% as reported and in constant currency, primarily driven by declines in Infant, Toddler and Preschool (including Fisher-Price and Thomas & Friends, and Fisher-Price Friends), Action Figures, Building Sets and Games (including Toy Story 4 and MEGA®, partially offset by growth in UNO® and Pictionary®), and Dolls (including owned brands and Barbie®). This was partially offset by growth in Vehicles (including Hot Wheels®, partially offset by lower sales of CARS® and Jurassic World® vehicles).

Net Sales in the International segment decreased 11% as reported, and 8% in constant currency.

Gross Sales in the International segment decreased 11% as reported, and 7% in constant currency, primarily driven by declines in Infant, Toddler and Preschool (including Fisher-Price and Thomas & Friends, and Fisher-Price Friends), Dolls (including Barbie, partially offset by growth in owned brands), and Action Figures, Building Sets and Games (including DC Comics™ and Jurassic World, partially offset by growth in UNO).

Net Sales in the American Girl segment decreased 16% as reported and in constant currency. Gross Sales in the American Girl segment decreased by 16% as reported and in constant currency, primarily driven by lower sales in proprietary retail channels, partially offset by higher direct-to-consumer sales.

Reported Gross Margin increased to 43.0%, versus 34.8% in the prior year’s first quarter, and Adjusted Gross Margin increased to 43.5%, versus 38.0%. The increase in Reported Gross Margin was primarily driven by the benefit of cost savings programs and the absence of the impact of the inclined sleeper product recalls. The increase in Adjusted Gross Margin was primarily driven by the benefit of Mattel’s cost savings programs.

Reported Other Selling and Administrative Expenses increased by $31.3 million, or 11%, to $328.7 million, versus the prior year’s first quarter. Adjusted Other Selling and Administrative Expenses increased by $26.2 million, or 9%, to $314.9 million. The increase in Reported and Adjusted Other Selling and Administrative Expenses was primarily driven by higher incentive compensation expense and employee-related costs, partially offset by the benefit of the Structural Simplification cost savings program.

Sales by Categories

For the first quarter, Worldwide Gross Sales for Dolls were $225.9 million, down 11% as reported, and down 9% in constant currency, versus the prior year’s first quarter, primarily driven by declines in Barbie and American Girl.

Worldwide Gross Sales for Infant, Toddler and Preschool were $140.3 million, down 28% as reported, and down 26% in constant currency, primarily driven by declines in Fisher-Price and Thomas & Friends, and Fisher-Price Friends.

Worldwide Gross Sales for Vehicles were $185.7 million, up 1% as reported, and up 4% in constant currency, primarily driven by growth in Hot Wheels, partially offset by expected declines in CARS vehicles, given the non-movie year.

Worldwide Gross Sales for Action Figures, Building Sets and Games were $118.1 million, down 21% as reported, and down 20% in constant currency, primarily driven by declines in Toy Story 4, post its movie launch year, and DC Comics, partially offset by growth in UNO.

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Mattel's First Quarter 2020 Financial Report
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