Mattel, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Business Challenges: The U.S. business was challenged by industry-wide shifts in retailer ordering patterns, but consumer demand for products grew in all regions, and international gross billings increased.
• Strategic Initiatives: Implemented a brand-centric organizational structure with integrated marketing; launched new product lines (Mattel Brick Shop, Hot Wheel Speed Snap Track); American Girl achieved fourth consecutive quarter of growth; made progress on self-published digital games; Mattel Studios developed new TV series; integrated AI capabilities; secured global licensing rights for K-Pop Demon Hunters and renewed Disney Princess/Frozen licensing agreements.
• Financials: Net sales, adjusted operating income, and adjusted EPS declined primarily due to U.S. retailers shifting orders, but POS increased in all regions, indicating healthy consumer demand.

Segment Performance

• Dolls: Gross billings declined 12%, primarily due to Barbie and Polly Pocket, partially offset by growth in Wicked, Monster High, and American Girl.
• Vehicles: Grew 6%, with Hot Wheels up 6% and on track for an eighth consecutive record year, driven by strong momentum across the portfolio.
• ITPS: Declined 26% due to declines in Fisher-Price and Preschool Entertainment, and planned exit of certain product lines in Baby Gear and Power Wheels.
• Challenger categories: Collected grew 9%, primarily driven by action figures like Jurassic World, Minecraft, WWE, and Masters of the Universe, though partially offset by declines in building sets.
• Games: UNO grew for the ninth consecutive quarter and maintained its position as the number one card game for Surcana.
• Region-wise: North America declined 10% due to retailer ordering pattern shifts, while other regions collectively increased 2% (EMEA +3%, Asia Pacific +11%, Latin America -4%).

Guidance

• Reiterated full-year 2025 guidance: net sales growth 1%-3% in constant currency, adjusted gross margin approximately 50%, adjusted operating income $700-$750 million, adjusted tax rate 23%-24%, adjusted EPS $1.54-$1.66, and free cash flow approximately $500 million.
• Targeted $600 million in share repurchases for the full year.
• Expect strong top-line growth in the fourth quarter due to accelerating U.S. retailer orders and continued consumer demand, tracking in line with full-year outlook.

Risks

• Market volatility and unexpected disruptions, including further regulatory actions impacting global trade and other macroeconomic risks.
• Timing of tariff impacts on gross margin, as tariff costs are flowing through inventory and will be more visible in the fourth quarter.

Question and Answer

• Q: Quantify POS in Q3 and year-to-date U.S. performance, and recapture of retail destock in Q4. A: Paul Ruh stated POS increased in all regions, including the U.S., and orders from U.S. retailers accelerated, supporting Q4 growth.
• Q: Driver of retailer order acceleration. A: Paul Ruh explained the shift from direct import to domestic shipping and Mattel's supply chain capabilities as drivers.
• Q: Content support in Q4 and next year. A: Ynon Kreiz mentioned the Wicked movie, upcoming Toy Story, Moana, and K-Pop Demon Hunters products as key content drivers.
• Q: Tariff impact and pricing next year. A: Paul Ruh discussed tariff impact phasing in and no decision on next year's pricing yet, emphasizing use of efficiencies to mitigate impacts.
• Q: Inventory and normalized levels. A: Paul Ruh said combined owned and retailer inventories are at appropriate levels for the holiday season, with owned inventory up but retailer inventories modestly lower, moving toward normalized trends.
• Q: New organizational structure impact. A: Ynon Kreiz explained the brand-centric structure aims to accelerate brand management and franchise flywheel, with Roberto Stellicci leading global brands team and driving growth in key categories.