MATTEL INC /DE/ Q1 FY2025 earnings call

• Mattel had a strong first quarter with topline growth and gross margin expansion. - The company is diversifying its supply chain, aiming to reduce reliance on China-sourced products. By 2027, it plans to have less than 25% of toy production from any one country, with U.S. imports from China targeted to be below 10% by 2027. - Pricing actions in the U.S. business aim to keep 40-50% of products priced at $20 or less. - Business grew across categories (dolls, vehicles, challenger categories) and geographies. - Entertainment strategy progresses with Masters of the Universe movie in production, Matchbox movie wrapped, and Barney toy line launched. - Savings from the Optimizing for Profitable Growth program and lower inventory management costs contributed to gross margin expansion, offset by some cost inflation.

Net sales for Mattel's First Quarter 2025 increased 2% as reported and 4% in constant currency to $827 million. Adjusted gross margin expanded 130 basis points to 49.6%. Gross billings in constant currency grew 5%. Dolls' gross billings rose 2% primarily from Disney Princess and Wicked, while Barbie and American Girl were flat. Vehicles' gross billings increased 6%, led by Hot Wheels. Infant, Toddler, and Preschool overall declined 5% due to Baby Gear and Power Wheels exits, but Barney launch helped. Challenger categories grew 14%, driven by Action Figures and Games. Geographically, North America saw 4% growth, EMEA 8%, Asia-Pacific 12%, and Latin America declined 7%.

• Full year 2025 guidance is paused due to uncertainty in demand outlook and evolving U.S. tariff situation. - Maintaining the $600 million share repurchase target for 2025. - Mitigating actions to offset tariff impact, with no Q2 impact expected, but Q3 may see tariff effects as inventory cycles through. The company is focused on scenario planning for different demand and cost scenarios.

• Tariffs and global trade uncertainty pose a risk to costs and supply chain. - Volatile macroeconomic environment could impact consumer spending. - Uncertainty in demand outlook for the remainder of 2025, especially during the holiday season, makes full year guidance difficult to predict.

Q: Arpine Kocharyan from UBS asked about the roadmap to offset tariff impact and current exposure.

A: Ynon Kreiz responded that Q1 and Q2 are not impacted by tariffs, with Q3 expected to see tariff impact. The pre-mitigation incremental tariff exposure is around $270 million, and the company's supply chain diversification efforts aim to fully offset this.

Q: Stephen Laszczyk from Goldman Sachs asked about pricing confidence with retailers and demand outlook.

A: Ynon Kreiz stated Mattel works closely with retailers, focusing on value and quality, with 40-50% of U.S. products priced at $20 or less. Anthony DiSilvestro mentioned scenario planning for demand, considering both upside and downside risks.

Q: Megan Clapp from Morgan Stanley asked about guidance pause and retailer ordering patterns.

A: Anthony DiSilvestro explained guidance is paused due to demand uncertainty, and retailers haven't shown material cancellations or pull forwards, but there may be volatility in direct import shipments.

Q: Kylie Cohu from Jefferies asked about pricing action required and price elasticities.

A: Anthony DiSilvestro said Mattel works with retailers on pricing balance, and price elasticity is hard to predict due to market volatility.

Q: Alex Perry from Bank of America asked about retailer buying behavior and inventory.

A: Anthony DiSilvestro noted no material cancellations, but some volatility in direct import shipments, and inventories are at appropriate levels.

Q: Eric Handler from ROTH Capital asked about direct import swing factor and product manufacturing.

A: Anthony DiSilvestro said direct import impact is hard to quantify, and Barbie and Hot Wheels products are manufactured outside China with no disruption risk.

Q: Chris Horvers from JP Morgan asked about gross margin and product pricing.

A: Anthony DiSilvestro said Q1 gross margin was better than expected, and over 40% of products were under $20 last year, with potential market share gains due to diversified supply chain.