Mattel Inc. reported full year and fourth quarter 2017 financial results.
For the year, net sales were down 11 percent as reported and in constant currency, versus the prior year. Gross sales were down 9 percent as reported, and down 10 percent in constant currency.
Reported operating loss was $342.8 million, and adjusted operating loss was $167.1 million. Reported loss per share was $3.07, which was negatively impacted by a net non-cash charge of $457 million related to a valuation allowance on U.S. deferred tax assets and U.S. tax reform, and adjusted loss per share was $1.08.
For the fourth quarter of 2017, net sales were down 12 percent as reported, and down 14 percent in constant currency, versus the prior year’s fourth quarter. Gross sales were down 8 percent as reported, and down 10 percent in constant currency. Reported operating loss was $252.8 million, and adjusted operating loss was $164.8 million. Reported loss per share was $0.82 and adjusted loss per share was $0.72.
For the year, net sales in the North American Region decreased by 17 percent as reported and in constant currency, versus the prior year; gross sales in the North American Region also decreased by 17 percent as reported and in constant currency, primarily driven by lower sales as a result of tighter retailer inventory management, certain underperforming brands, and the Toys “R” Us bankruptcy filing. In the International Region, net sales were flat as reported, and decreased by 1 percent in constant currency; gross sales in the International Region increased by 2 percent as reported, and were flat in constant currency. The decline in reported and adjusted gross margin for the year was driven mainly by inventory management efforts, unfavorable product mix, and higher freight and logistics expenses.
Reported other selling and administrative expenses increased by $121.1 million, primarily driven by asset impairments and severance and restructuring charges. Adjusted other selling and administrative expenses for the year increased $50.6 million, reflecting higher employee-related costs. Reported operating loss for the year was $342.8 million, compared to the prior year’s reported operating income of $519.2 million. Adjusted operating loss for the year was $167.1 million, compared to the prior year’s adjusted operating income of $560.8 million.
For the fourth quarter, net sales in the North American Region decreased by 17% as reported and in constant currency, versus the prior year’s fourth quarter; gross sales in the North American Region decreased by 16% as reported and in constant currency, primarily driven by tighter retailer inventory management, certain underperforming brands, and Toys “R” Us bankruptcy filing. In the International Region, net sales decreased by 4% as reported, and decreased by 9% in constant currency; gross sales in the International Region increased 4% as reported, and decreased by 1% in constant currency. The decline in reported and adjusted gross margin for the quarter was driven mainly by inventory management efforts, unfavorable product mix, and higher freight and logistics expenses. Reported other selling and administrative expenses increased by $105.9 million, primarily driven by severance and restructuring charges, asset impairments and adjusted other selling and administrative expenses for the quarter increased $45.1 million, driven primarily by an unfavorable year over year comparison due to a prior year reversal of incentive compensation in the fourth quarter of 2016. Reported operating loss for the quarter was $252.8 million, compared to the prior year’s fourth quarter reported operating income of $262.6 million. Adjusted operating loss for the quarter was $164.8 million, compared to the prior year’s fourth quarter adjusted operating income of $269.2 million.
For the year, net cash flows used for operating activities were approximately $28 million, compared to net cash flows in the prior year from operating activities of approximately $595 million, primarily driven by the net loss for the year, excluding the impact of the valuation allowance on deferred tax assets, and other non-cash charges. Cash flows used for investing activities were approximately $236 million in 2017, a decrease of approximately $76 million versus the prior year, primarily driven by higher proceeds from foreign currency forward exchange contracts and 2016 payments related to the acquisitions of Fuhu and Sproutling, partially offset by higher capital spending. Cash flows provided by financing activities and other were approximately $473 million in 2017, compared to cash flows used for financing activities and other of approximately $306 million for the prior year, primarily driven by proceeds from the $1.0 billion issuance of senior notes in December 2017 and lower dividend payments, offset by higher net repayments of short-term borrowings.
As of December 31, 2017, the company’s debt-to-total capital ratio was 71.3 percent.
For the year, worldwide gross sales for Mattel Girls & Boys Brands were $3.1 billion, down 4 percent as reported, and down 5 percent in constant currency, versus the prior year. Worldwide gross sales for the Barbie brand were down 2 percent as reported, and down 3 percent in constant currency, versus the prior year, primarily driven by a shift in DVD entertainment strategy. Worldwide gross sales for Other Girls brands were down 36 percent as reported, and down 37 percent in constant currency, versus the prior year, primarily driven by declines in Monster High and Ever After High, partially offset by initial sales of Enchantimals. Worldwide gross sales for the Wheels category were down 4 percent as reported, and down 5 percent in constant currency, versus the prior year, primarily driven by declines in Hot Wheels and Matchbox. Worldwide gross sales for the Entertainment business were up 12 percent as reported, and up 11 percent in constant currency, versus the prior year, primarily driven by increases in Cars sales, offset by declines in Minecraft and DC Comics products.
For the fourth quarter, worldwide gross sales for Mattel Girls & Boys Brands were $1.1 billion, up 1 percent as reported, and down 2 percent in constant currency, versus the prior year’s fourth quarter. Worldwide gross sales for the Barbie brand were up 9 percent as reported, and up 6 percent in constant currency, versus the prior year’s fourth quarter, as a result of shipping aligning with strong POS. Worldwide gross sales for Other Girls brands were down 35 percent as reported, and down 36 percent in constant currency, versus the prior year’s fourth quarter, primarily driven by declines in Monster High and DC Super Hero Girls, partially offset by initial sales of Enchantimals. Worldwide gross sales for the Wheels category were down 7 percent as reported, and down 10 percent in constant currency, versus the prior year’s fourth quarter, primarily driven by declines in Hot Wheels. Worldwide gross sales for the Entertainment business were up 21 percent as reported, and up 18 percent in constant currency, versus the prior year’s fourth quarter, primarily driven by increases in CARS sales, offset by declines in Dinotrux and Minecraft.
For the year, worldwide gross sales for Fisher-Price Brands, which includes the Fisher-Price Core, Fisher-Price Friends and Power Wheels brands, were $1.7 billion, down 11 percent as reported, and down 12 percent in constant currency, versus the prior year, primarily driven by declines in infant and preschool products and Thomas & Friends. Fourth quarter worldwide gross sales were $533.8 million, down 12 percent as reported, and down 14 percent in constant currency, versus the prior year’s fourth quarter, primarily driven by declines in infant and preschool products and Thomas & Friends.
For the year, worldwide gross sales for American Girl Brands, which offers American Girl-branded products directly to consumers, were $451.5 million, down 21 percent as reported and in constant currency, versus the prior year, primarily driven by lower sales across channels. Fourth quarter worldwide gross sales for American Girl Brands were $217.3 million, down 23 percent as reported and in constant currency, versus the prior year’s fourth quarter, primarily driven by lower sales across channels.
For the year, worldwide gross sales for Construction and Arts & Crafts Brands, which includes the MEGA BLOKS and RoseArt brands, were $269.5 million, down 29 percent as reported and in constant currency, versus the prior year, primarily driven by declines in MEGA BLOKS licensed and preschool products. Fourth quarter worldwide gross sales for Construction and Arts & Crafts Brands were $93.5 million, down 25 percent as reported, and down 26 percent in constant currency, versus the prior year’s fourth quarter, primarily driven by declines in MEGA BLOKS licensed and preschool products.
