Slowly but steadily, Mattel Inc. continues making headway in its turnaround effort with the release of its third quarter earnings this afternoon. The financial results were revealed alongside two other notable announcements from the El Segundo-based toymaker, including the conclusion of its internal whistleblower investigation and the pending exit of Mattel Chief Financial Officer Joseph Euteneuer.
In the third quarter, net sales increased 3% to $1.48 billion compared to $1.44 billion in 2018, while operating loss decreased to $28.3 million versus a loss of $339 million last year. As we’ve reported in the past few quarters, the company is still losing money, but the needle is moving steadily in the right direction toward becoming profitable again.
“Our third quarter performance demonstrates the continued momentum of our multi-year turnaround and consistent progress in transforming Mattel into an IP-driven, high-performing toy company,” says Mattel Chairman and CEO Ynon Kreiz, noting that the company achieved its fifth consecutive quarter of improved profitability and the second consecutive quarter of revenue growth. “We continue to make meaningful progress in laying the groundwork to capture the full value of our IP [and] are encouraged by this momentum, as we remain focused on execution and the creation of long-term shareholder value,” he says.
CFO Joseph Euteneuer echoes those statements, noting that the company is making meaningful progress across all of its financial metrics. “The improvement was driven by revenue growth and structural simplification savings.”
Euteneuer will leave the company following a transition period of up to six months as Mattel seeks a new CFO to take his place.
In regard to the recent investigation regarding an anonymous whistleblower letter, Mattel discovered non-cash errors in reporting in 2017. As a result, the company says it “will undertake a series of remedial actions,” including the amendment of its 2018 Form 10-K to restate the last two quarters of 2017, certain related information, and the strengthening of its internal control over financial reporting.
Hot Wheels Races to Record Numbers
Mattel’s Hot Wheels brand is firing on all cylinders, racking up a 25% increase for the third quarter. Kreiz says that “Hot Wheels Monster Trucks is off to an excellent start.” While Hot Wheels is driving the overall vehicles category to great success, Jurassic World and Disney•Pixar Cars toys have continued to decrease.
Mattel President and COO Richard Dickson says that the marketing for the Hot Wheels brand and the launch of new products, such as the Colossal Crash Track Set, has been fantastic. He further notes the ongoing success of the Hot Wheels Legends Tour (now in its second year) and that the brand achieved a 25% sales increase against last year’s 50th anniversary celebration.
Barbie Leads Doll Category Growth
As the 60th anniversary celebration of Barbie continues, the iconic doll brand scored a 10% sales increase. Barbie is in its seventh consecutive quarter of growth. Additionally, strong sales in Polly Pocket — cited as a third fastest-growing doll brand, per the NPD Group — and the debut of BTS dolls contributed to a 5% sales increase for the overall dolls category, but American Girl continued its slide, down 15% for the quarter. Creatable World is said to be off to a strong start, but talk of the “American Girl turnaround” continues.
Infant, Toddler, and Preschool Declines
Sales in the overall infant, toddler, and preschool category continues to fall, with another 11% decline for the quarter. The combined Fisher-Price and Thomas and Friends brands were down 3%. A new marketing campaign for Fisher-Price combined with a strong fall lineup may create some holiday excitement from parents. “Thomas and Friends is our challenging area,” Dickson says, noting that the multiple different track systems and play patterns previously introduced for the brand confused kids and parents. Looking ahead, Thomas and Friends will celebrate its 75th anniversary next year, with new products expected to debut at Toy Fair New York in February. Dickson says that the company is very excited about its Fisher-Price core offerings and that Linkimals are off to a good start, and retailtainment experiences at Walmart are doing well.
Action Figures, Building Sets, and Games Improve
The combined categories had a 12% increase driven by strong sales of Toy Story 4 product and MEGA Brands. In the action aisle, Jurassic World declined as expected in a non-movie year. New games, including UNO Braille, are said to have been well-received.
In an opposite showing to Hasbro’s recent earnings, the fluctuating tariff situation doesn’t appear to have affected Mattel much at all. Mitigation strategies seem to be working, and Kreiz says the company does not anticipate much of a hit due to U.S./China trade negotiations through the end of the year. He further says that the manufacturing system and supply chain that Mattel seeks to embrace is flexible. “This is not simply about the U.S. and China,” he says.
The shorter holiday shopping season could have an effect at the cash registers, as expected.
Additionally, Mattel’s entertainment ambitions are progressing, with Masters of the Universe (MOTU) and the recent deal to produce a Tom Hanks-led film based on Major Matt Mason briefly mentioned. While little new information was provided, Kreiz specifically called out the development of the MOTU animated series led by filmmaker Kevin Smith as a highlight.