Despite reported global growth at retail for toys in the first quarter, Mattel’s earnings show a 14% decline in net sales globally and a 17% decline in North America. In the U.S., the company estimates that 40% of retail stores that carry its products — representing a third of revenue — were closed.
Net sales fell to $594.1 million, compared to $689.2 in the first quarter of last year. The company experienced a greater operating loss and loss per share than last year. Reported gross margin increased to 43%, compared to 34.8% last year.
“While the world has been facing the unprecedented health and economic impact of COVID-19, we have been quickly adjusting the way we operate and how we manage the company,” says Mattel Chairman and CEO Ynon Kreiz. “Our top priority has been to protect the health and safety of our people and at the same time mitigate the disruption to our business. I am proud of how our team has embraced uncertainty and change and demonstrated resilience in the face of this challenge.”
In recent months, the company has continued to “rapidly respond to the frequent and unpredictable changes occurring in various locations where Mattel operates.” This follows last year’s tariff threats and the recent spread of the coronavirus and COVID-19. The company is working with its retail partners to adjust to new consumer behaviors as families shift purchases to e-commerce and omnichannel experiences.
“Our work over the past two years to develop a flexible and results-oriented organization is serving us well during this time,” Kreiz says. “We remain focused on transforming Mattel into an IP-driven, high-performing toy company, and creating long-term shareholder value. Looking beyond the second quarter, with supply chain and retail distribution continuing to improve and markets reopening, we are planning for increased demand for our products in expectation of a much-improved second half and holiday season. We are confident in our ability to navigate through the balance of the year and believe our assets, resources, and capabilities position us well to succeed in the recovery.”
Category Declines and Growth
The biggest impact came in the form of declines in major categories. Infant, toddler, and preschool — including Thomas & Friends and Fisher-Price — fell 28%. American Girl dropped 16%. Dolls declined 11%. Vehicles were up 1%, primarily driven by 5% growth in Hot Wheels, which was offset by Disney•Pixar Cars vehicles.
While games and puzzles have been experiencing growth across the industry, Mattel includes its portfolio with action figures, building sets, and games. Combined, those categories fell 20%, with greater declines offset by a boom in UNO and Pictionary, Apples to Apples, and Kerplunk. Toy Story 4 products are declining quickly following last year’s movie year.
The Licensed Product Question
Licensing with toys based on major motion pictures and events is now out of sync. “We will be impacted by the delay in Universal’s Minions, and a number of Olympics tie-ins,” Kreiz said on a call with investors. “We will be affected by a shift in global release schedules and will work with partners to determine the best course of action.”
Supporting Families and Frontline Heroes
Mattel recently launched its #ThankYouHeroes collection to benefit #FirstRespondersFirst. Additionally, the company has been working to provide face shields and cloth masks to healthcare providers and has partnered with numerous organizations to assist families in need. The company also launched the Mattel Playroom to provide free content and ideas for families that are playing together at home.
Mattel feels that it has significant cash flow and will be able to make it through the challenges of the COVID-19 pandemic in addition to making continuous adjustments to its “cash-light” model and other cost-cutting measures. No debts are due until 2023. Finally, Mattel has withdrawn its financial guidance for the rest of the year.
More to follow … this story will be updated.