Mattel continues to make progress in its oft-touted “multi-year turnaround,” with strong performance across a number of segments.

The El Segundo-based toymaker reported its second quarter earnings this evening, with net sales increasing 2% to $860.1 million compared to $840.7 million in 2018, while operating loss decreased to $51.4 million versus a loss of $189.2 million last year. The company is still losing money, but the needle is moving in the right direction.

“We delivered top-line growth in our North America and International segments across all regions, as well as growth in all categories except one,” says Mattel Chairman and CEO Ynon Kreiz, who further notes that the company exceeded its structural simplification target, and achieved its fourth consecutive quarter of improved profitability.

On tonight’s quarterly call with investors, Kreiz delved into some of the successes of recent months — many of which mirror the first quarter, with classic brands such as Hot Wheels and Barbie paving the way. Where the company saw a big gain for the second quarter is in action figures, building sets, and games, which had a 21% bump due in large part to early sales of product from Disney•Pixar’s Toy Story 4.

Fisher-Price, American Girl, and Thomas & Friends are Still Off the Rails

Back in April, we reported that these three iconic brands just couldn’t catch a break — and that hasn’t changed.  The enormous downward spiral of American Girl continues, with another dismal quarter that saw a 22% decline, which followed a 32% drop in the first quarter, and an overall drop of 28% last year. In May, industry vet Jamie Cygielman was placed in charge of the brand, and Kreiz promises a new product mix with regular injections of “newness,” a revised pricing structure, and a new consumer outreach program to be revealed by fall.

Worldwide gross sales in infant, toddler and preschool fell 13%, with more declines across the core Fisher-Price brands, Fisher-Price Friends, and Thomas & Friends. The impact of the Rock ‘N Play sleeper recall is expected to cost the company upward of $35 million, while consumer perception has likely taken a hit. The company plans a push for Thomas & Friends’ 75th anniversary next year, but as Richard Dickson, Mattel‘s president and COO points out, recent animated offerings have performed “just okay, and okay isn’t good enough.”

Hot Wheels is Blazing New Roads

While the vehicles category is flat due to declines across Disney•Pixar CARS and Universal’s Jurassic World vehicles in a non-movie year, Hot Wheels continues to rise, with what Kreiz notes to be “the best second quarter in the brand’s history.” Up 10%, the Hot Wheels team is innovating with new additions to the core product, including the recent launch of Hot Wheels id, which debuted at Apple Stores and at Amazon on Prime Day.

Additionally, live events continue to grow, bringing Hot Wheels to the fans, while gaining new audiences through traditional retail and lifestyle angles such as the Hot Wheels Legends Tour (which is stopping at Walmart stores across the country) and Hot Wheels Monster Trucks Live, which is now the subject of a syndicated television series, and will head to Europe next year.

Movies, Licensing, and Entertainment

One of the most frequently discussed pieces of the Mattel puzzle is the company’s push toward entertainment — particularly Mattel Films, and the 22+ promised television series in development for network and streaming. The multitude of announcements ahead of any finished projects has raised questions from investors and industry watchers as to what the actual approach will be, and if Mattel expects to use its films solely to push toys.

“We remain very bullish and confident on the toy side of the business,” explains Kriez, noting that the company has a lot of opportunity to commercialize its IP. “We have an opportunity to make a big play on content that could be transformative to the company,” he says.

“If your strategy is to make movies just to sell toys, it will fail,” Kreiz adds, further stating that Mattel wants to “make content that people want to watch.”

In external licensing, Mattel recently added HBO’s Game of Thrones to its Mega Construx mix, and eOne’s PJ Masks will soon debut in the preschool-focused MEGA Bloks range. Additionally, Toy Story 4 should sell well through the holidays, and new product from Mattel’s recently expanded licensing agreement with Disney•Pixar will hit next year, led by toys from Onward. Additionally, Fisher-Price will soon debut some Frozen 2 offerings as part of its Little People collection, and an array of pop culture licenses continue to perform under the Hot Wheels brand.

Looking ahead, the forthcoming launch of dolls based on Korean mega-stars BTS is expected to do well, with all dolls hitting the Amazon Top 20 during their initial preorder wave.

The Power Returns: He-Man and the Masters of the Universe

Mattel is looking toward its past in a big way, with a multi-year plan to relaunch one of its biggest franchises of all-time: He-Man and the Masters of the Universe (MOTU). Sans some collector-focused products in recent years and a short-lived revamp in the early 2000’s, Kreiz notes that Mattel itself has not properly commercialized MOTU in nearly 35 years. On the investor call, Mattel CFO Joseph Euteneuer pointed to the massive presence of the brand at this month’s Comic-Con International: San Diego (SDCC), which brought the first major announcement for its upcoming relaunch — Masters of the Universe: Origins. Debuting with an SDCC exclusive He-Man and Prince Adam two-pack this year, a full range of new figures and play sets will hit retail next fall, presenting classic characters with modern articulation. The company also notes that of all the film projects currently announced, Sony’s MOTU feature (due in March 2021) is the most buzzed-about from fans.

Tariff Concerns Still Loom:

Following a lengthy conversation about potential tariffs when Hasbro reported its quarterly earnings this week, Mattel also weighed in on what could happen, should President Trump move forward with the long-threatened 25% tax on Chinese imports.

“We are being watchful. We have contingency plans in place,” says Kreiz. “It doesn’t mean that Mattel will bear the full weight of the tariffs, as there’s different levers we could pull. This involves price increases, switching manufacturing… it’s an overall strategy relating to how we design, manufacture, and get products to the shelves.”

Mattel shares spiked as much as 7% during after hours trading following its earnings announcement.