Mattel, Inc. Q1 FY2026 earnings call

• Off to a good start to the year with growth in net sales and positive consumer demand. - Making progress on strategy to grow IP-driven play and family entertainment business, with top line acceleration in second quarter to date. - Executed on capital allocation priorities, including acquiring full ownership of Mattel 163 Mobile Game Studio and repurchasing $200 million of shares. - Portfolio performance had standout brands growing double digits, strong progress on digital strategy with integration of Mattel 163 and upcoming self-published mobile games, and robust marketing campaigns for Masters of the Universe and other films. - Leadership change with Steve Totski stepping down and Sanjay Luthra succeeding him as chief commercial officer. - Achieved $16 million in savings in the quarter as part of Optimizing for Profitable Growth program, with cumulative savings to $189 million and target of $225 million by 2026.

Gross billings grew 2% in constant currency with increase in vehicles and challenging categories overall, partly offset by a decrease in dolls and infant, toddler, and preschool. Net sales grew 4% as reported and 1% in constant currency to $862 million. Key brands like Hot Wheels, Uno, Monster High, Toy Story, WWE, Masters of the Universe, and Mattel Break Shop saw double-digit or higher growth. Vehicles momentum continued with 13% increase, Hot Wheels and Disney and Pixar's Cars each grew double digits. Infant, toddler, and preschool declined 18% primarily due to Fisher-Price, but little people within Fisher-Price grew double digits. Games grew led by Uno, action figures growth driven by owned and partnered properties, and Mattel BriefShop performed exceptionally well.

• 2026 guidance unchanged except recasting adjusted operating income and EPS to exclude amortization of acquired intangible assets. Net sales guidance unchanged, expecting 3% to 6% growth in constant currency with FX tailwind of 1 to 2 percentage points on full-year reported net sales. Adjusted gross margin expected to be approximately 50% for full year, with sequential improvement in second quarter though below 50% in Q2 and improving in second half. - 2027 expected mid to high single digit revenue growth in constant currency and strong double digit growth in adjusted operating income, benefiting from brand centric strategy, innovation, major partnerships, and returns of strategic investments.

• Minimal impact on business to date from current geopolitical events like war in Middle East, but continue to monitor. - Conditions remain fluid, current guidance subject to market volatility, unexpected disruptions, macroeconomic risks and uncertainties including further developments in Middle East and regulatory actions impacting global trade. - Adjusted gross margin decline due to gross cost impact of tariffs, unfavorable foreign exchange, and inflation, partially offset by tariff mitigation actions and OPG savings.

Q: About Middle East impact and margin, A: Minimal impact year to date, continue to monitor, guidance includes range of assumptions and scenarios, not immune but too early to speculate.

Q: Top line better than expected, drivers and Easter timing, A: Strong start with double-digit growing brands, positive consumer demand, strong industry growth, acceleration in shipping quarter to date.

Q: AIPA tariff rollback, A: Guidance includes range of assumptions, tariff situation fluid, actively working on refunds but uncertainty remains.

Q: Digital strategy and 2027 outlook, A: Acquisition of Mattel 163 completed, integration tracking well, strategic investments in digital games, self-published games in progress, 2027 expected strong growth.

Q: Infant, toddler, preschool decline, A: 2-3% headwind, drag becoming smaller, growth in little people within Fisher-Price, relaunch of Thomas in second half.

Q: Strategic initiatives and organization, A: Brand-centric strategy, holistic management, leveraging brands across toy and non-toy, marketing holistically.

Q: Mattel Brick Shop, A: Fast growing category, strong consumer demand, ramping up, significant contributor potential.

Q: Masters of the Universe lift to earnings, A: Positive, toyetic, driving sales, double-digit growth expected.

Q: Commodity and freight prices impact on guidance, A: Depends on disruption duration and oil price elevation, guidance intact with current assumptions.

Q: Sales cadence and retail inventory, A: Q1 good, Q2 expected growth, US retailer ordering patterns stabilizing.

Q: Strategic review of infant, toddler, preschool, A: Assessing the business, importance of category and Fisher-Price.

Q: Investment spending, A: $150 million target for 2026, tracking on plan, high ROI expected.

Q: CapEx, A: Don't guide specifically, tracking to expectations, in line with net sales.

Q: Tariff and retail prices, A: Constant conversations with retail partners, early days, not set retail prices.

Q: POS and second quarter improvement, A: Gross billings strong, US ordering patterns stabilizing, north America region expected to grow in Q2.

Q: Gross margin compression and trend, A: Decline due to tariffs, FX, inflation, expected sequential improvement in second half.