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February 2021 | Vol. XX - No. 2


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Mattel Quarterly Sales Up 10% Beats Estimates With Strong Holiday Barbie Sales




This Disney and Pixar's Cars-themed Car Wash playset is a colour-changing, interactive blast of good, clean fun!

Fourth Quarter 2020 Highlights

 

  • Net Sales of $1,626 million, up 10% as reported, and in constant currency, versus prior year
  • Reported Gross Margin of 51.4%, an improvement of 300 basis points; Adjusted Gross Margin of 51.4%, an improvement of 250 basis points
  • Reported Operating Income of $192.7 million, an improvement of $125.1 million; Adjusted Operating Income of $205.0 million, an improvement of $95.7 million
  • Reported Net Income of $130.5 million, an improvement of $130.4 million
  • Adjusted EBITDA of $283.8 million, up 53%

Full Year 2020 Highlights

  • Net Sales of $4,584 million, up 2% as reported, including the unfavorable foreign exchange impact of $54 million, and up 3% in constant currency, versus prior year
  • Reported Gross Margin of 48.9%, an improvement of 490 basis points; Adjusted Gross Margin of 49.1%, an improvement of 420 basis points
  • Reported Operating Income of $380.9 million, an improvement of $341.6 million; Adjusted Operating Income of $447.6 million, an improvement of $291.5 million
  • Reported Net Income of $126.6 million, an improvement of $340.1 million
  • Adjusted EBITDA of $719.0 million, up 59%
  • Cash Flows Provided by Operating Activities of $289 million, an improvement of $108 million
  • Free Cash Flow of $167 million, an improvement of $102 million, achieving positive Free Cash Flow for the second consecutive year
  • Announcing new “Optimizing for Growth” program to drive greater productivity to accelerate growth and to further reduce costs, with expected savings of $250 million by 2023
  • 2021 guidance to be provided on Company’s Q4 and full year 2020 conference call and live webcast

EL SEGUNDO, Calif.--(BUSINESS WIRE)--Feb. 9, 2021-- Mattel, Inc. (NASDAQ: MAT) today reported fourth quarter and full year 2020 financial results.

Ynon Kreiz , Chairman and CEO of Mattel said: “This was a banner quarter for the company with our best performance in years. In the midst of a pandemic and very challenging market conditions, our results exceeded expectations, with another major upswing in topline and a significant increase in profitability, as we gained global market share and continued to transform Mattel into an IP-driven, high performing toy company. The fourth quarter and full year demonstrated the resilience of the toy industry and the priority that parents place on quality toys, trusted brands and purposeful play.

Our momentum was driven by the quality and breadth of our product offering, enduring strength of our brands, highly efficient supply chain, world-class commercial capabilities and very effective demand creation, in close collaboration with our retail partners. The continuous improvement in our performance puts us in a strong position from which we believe we can accelerate our growth.

I could not be more proud of the entire Mattel global team for having stepped up in an extremely tumultuous year to support our consumers, customers, business partners and communities where we live and work.”

Anthony DiSilvestro , CFO of Mattel said: “Mattel delivered another outstanding quarter of double-digit growth with broad-based gains across the portfolio and continued improvement in gross margin, and we are pleased with our performance for the full year. With a strong finish and positive start to 2021, we are providing guidance for the new year reflecting continued improvement in both our top and bottom line. Mattel also stands to benefit from our newly announced ‘Optimizing for Growth’ program and we believe we are well-positioned to continue this momentum.”

For the fourth quarter, Net Sales were up 10% as reported, and in constant currency, versus the prior year’s fourth quarter. Reported Operating Income was $192.7 million, an improvement of $125.1 million, and Adjusted Operating Income was $205.0 million, up $95.7 million. Reported Earnings Per Share was $0.37, an improvement of $0.37 per share. Adjusted Earnings Per Share was $0.40, an improvement of $0.29 per share.

For the year, Net Sales were up 2% as reported, including the unfavorable foreign exchange impact of $54.0 million, and up 3% in constant currency, versus the prior year. Reported Operating Income was $380.9 million, an increase of $341.6 million, and Adjusted Operating Income was $447.6 million, up $291.5 million. Reported Earnings Per Share was $0.36, an improvement of $0.98 per share. Adjusted Earnings Per Share was $0.54, an improvement of $0.84 per share.

COVID-19 Business Update

Mattel’s top priority continues to be the health and safety of its people, and at the same time, mitigating the disruption of the COVID-19 pandemic to the business. Mattel remains mindful of the COVID-19 volatility and other macro-economic uncertainties, which could negatively impact performance, and continues to work closely with its retail partners.

Financial Overview

Fourth Quarter 2020

Net Sales in the North America segment increased 13% as reported and in constant currency, versus the prior year’s fourth quarter.

Gross Billings in the North America segment increased 13% as reported and in constant currency, primarily driven by growth in Dolls (including Barbie®), Infant, Toddler, and Preschool (including Fisher-Price® and Thomas & Friends™, partially offset by Fisher-Price Friends ), Action Figures, Building Sets, Games, and Other (including Star Wars™: The Child plush and Games, including UNO®, and MEGA®, partially offset by lower billings of licensed action figures), and Vehicles (including Hot Wheels®).

Net Sales in the International segment increased 7% as reported, and 8% in constant currency.

Gross Billings in the International segment increased 8% as reported and in constant currency, driven by growth in Vehicles (including Hot Wheels), Dolls (including Barbie, partially offset by lower billings of licensed dolls), Action Figures, Building Sets, Games, and Other (including Games, including UNO, and MEGA, partially offset by lower billings of licensed action figures). This was partially offset by a decline in Infant, Toddler, and Preschool (including Fisher-Price Friends ).

Net Sales in the American Girl® segment increased 12% as reported and in constant currency. Gross Billings in the American Girl segment increased 9% as reported and in constant currency, primarily driven by higher direct-to-consumer billings, partially offset by lower billings of proprietary retail channels, the impact of permanent closure of certain retail stores, and lower billings of external distribution channels.

Reported Gross Margin increased to 51.4%, versus 48.4% in the prior year’s fourth quarter, and Adjusted Gross Margin increased to 51.4%, versus 48.9%. The increase in Reported Gross Margin was primarily driven by cost savings programs and reduced royalty expenses.

Reported Other Selling and Administrative Expenses decreased by $53.7 million, or 13%, to $364.7 million. Adjusted Other Selling and Administrative Expenses decreased by $30.6 million, or 8%, to $353.2 million. The decrease in Reported and Adjusted Other Selling and Administrative Expenses was primarily driven by the timing of incentive and employee-related expenses and the incremental benefit of cost savings from Mattel’s Structural Simplification program.

Full Year 2020

Net Sales in the North America segment were up 7% as reported and in constant currency, versus the prior year.

Gross Billings in the North America segment increased 6% as reported and in constant currency, primarily driven by growth in Dolls (including Barbie, partially offset by lower billings of licensed dolls), Action Figures, Building Sets, Games, and Other (including Star Wars: The Child plush, and Games, including UNO, partially offset by lower billings of licensed action figures), and Vehicles (including Hot Wheels, partially offset by lower billings of licensed vehicles). This growth was partially offset by a decline in Infant, Toddler, and Preschool (including Fisher-Price Friends and Fisher-Price and Thomas & Friends).

Net Sales in the International segment decreased 4% as reported and 1% in constant currency.

Gross Billings in the International segment decreased 3% as reported, and 1% in constant currency, due to declines in Infant, Toddler, and Preschool (including Fisher-Price and Thomas & Friends and Fisher-Price Friends ), Action Figures, Building Sets, Games, and Other (including licensed action figures, partially offset by Games, including UNO), and Vehicles (including licensed vehicles). This decrease was partially offset by growth in Dolls (including Barbie, partially offset by lower billings of licensed dolls).

Net Sales in the American Girl segment increased by 1% as reported and in constant currency. Gross Billings in the American Girl segment decreased by 1% as reported, and in constant currency, primarily due to lower billings of proprietary retail channels, the impact of permanent closure of certain retail stores, and lower billings of external distribution channels, substantially offset by higher direct-to-consumer channel billings.

Reported Gross Margin increased to 48.9%, versus 44.0% in the prior year, and Adjusted Gross Margin increased to 49.1%, versus 44.9%. The increase in Reported Gross Margin was primarily driven by cost savings programs and reduced royalty expenses.

Reported Other Selling and Administrative Expenses decreased by $44.1 million, or 3%, to $1,345.9 million. Adjusted Other Selling and Administrative Expenses decreased by $28.6 million, or 2%, to $1,284.8 million. The decrease in Reported and Adjusted Other Selling and Administrative Expenses was primarily driven by savings from Structural Simplification.

For the twelve months ended December 31, 2020, Cash Flows provided by Operating Activities improved by $108 million to $289 million, primarily driven by current year net income, excluding the impact of non-cash charges, partially offset by higher working capital usage. Cash Flows Used for Investing Activities increased by $21 million to $135 million, primarily due to payments for foreign currency forward exchange contracts. Cash Flows Used for Financing Activities and Other improved by $10 million to $21 million, primarily driven by the refinancing of long-term borrowings in 2019.

Gross Billings by Categories

Fourth Quarter 2020

Worldwide Gross Billings for Dolls were $709.1 million, up 13% as reported, and in constant currency, versus the prior year’s fourth quarter, primarily driven by growth in Barbie and American Girl, partially offset by lower billings of licensed dolls.

Worldwide Gross Billings for Infant, Toddler, and Preschool were $405.5 million, up 6% as reported, and up 7% in constant currency, driven by growth in Fisher-Price and Thomas & Friends, partially offset by lower billings of Fisher-Price Friends .

Worldwide Gross Billings for Vehicles were $396.3 million, up 11% as reported, and up 12% in constant currency, driven by growth in Hot Wheels.

Worldwide Gross Billings for Action Figures, Building Sets, Games, and Other were $324.0 million, up 9% as reported and in constant currency, driven by growth in Games, including UNO, Star Wars: The Child plush, and MEGA, partially offset by lower billings of licensed action figures.

Full Year 2020

Worldwide Gross Billings for Dolls were $1,886.4 million, up 9% as reported, and up 11% in constant currency, versus the prior year, driven by growth in Barbie.

Worldwide Gross Billings for Infant, Toddler, and Preschool were $1,149.7 million, down 9% as reported, and down 8% in constant currency, due to declines in Fisher-Price and Thomas & Friends and Fisher-Price Friends .

Worldwide Gross Billings for Vehicles were $1,110.0 million, up 1% as reported, and up 3% in constant currency, driven by growth in Hot Wheels, partially offset by lower billings of licensed vehicles.

Worldwide Gross Billings for Action Figures, Building Sets, and Games were $991.6 million, up 1% as reported, and up 2% in constant currency, driven by growth in Star Wars: The Child plush, and Games, including UNO, partially offset by lower billings of licensed action figures.

“Optimizing for Growth” Program

Mattel is implementing a new “Optimizing for Growth” program to optimize operations and drive greater productivity to accelerate growth, and at the same time, further reduce its cost base. This new program integrates the Capital Light program going forward with several new productivity opportunities that leverage Mattel’s scale and streamline key processes and is expected to deliver in aggregate $250 million of incremental cost savings by 2023. Mattel estimates the costs and investments to implement the program to be between $100 million to $125 million, which will be updated as the program advances.

Conference Call and Live Webcast

At 5:00 p.m. (Eastern Time) today, Mattel will host a conference call with investors and financial analysts to discuss its fourth quarter and full year 2020 financial results. The conference call will be webcast on Mattel's Investor Relations website, https://investors.mattel.com/. To listen to the live call, log on to the website at least 10 minutes early to register, download and install any necessary audio software. An archive of the webcast will be available on Mattel's Investor Relations website for 90 days and may be accessed beginning approximately two hours after the completion of the live call. A telephonic replay of the call will be available beginning at 8:30 p.m. Eastern time the evening of the call until Tuesday, February 16, 2021 and may be accessed by dialing +1-404-537-3406. The passcode is 4894534.

 

Non-GAAP Financial Measures

To supplement our financial results presented in accordance with generally accepted accounting principles in the United States (“GAAP”), Mattel presents certain non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. The non-GAAP financial measures that Mattel uses in this earnings release include Adjusted Gross Profit, Adjusted Gross Margin, Adjusted Other Selling and Administrative Expenses, Adjusted Operating Income (Loss), Adjusted Operating Income (Loss) Margin, Adjusted Earnings (Loss) Per Share, earnings before interest expense, taxes, depreciation and amortization (“EBITDA”), Adjusted EBITDA, Leverage Ratio (Debt / Adjusted EBITDA), Free Cash Flow, and constant currency. Mattel uses these measures to analyze its continuing operations and to monitor, assess, and identify meaningful trends in its operating and financial performance, and each is discussed below. Mattel believes that the disclosure of non-GAAP financial measures provides useful supplemental information to investors to be able to better evaluate ongoing business performance and certain components of Mattel’s results. These measures are not, and should not be viewed as, substitutes for GAAP financial measures and may not be comparable to similarly titled measures used by other companies. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are attached to this earnings release as exhibits and to our earnings slide presentation as an appendix.

This earnings release and our earnings slide presentation are available on Mattel's Investor Relations website, https://investors.mattel.com/, under the subheading “Financial Information – Earnings Releases.”

Adjusted Gross Profit and Adjusted Gross Margin

Adjusted Gross Profit and Adjusted Gross Margin represent reported Gross Profit and reported Gross Margin, respectively, adjusted to exclude severance and restructuring expenses and the impact of the inclined sleeper product recalls. Adjusted Gross Margin represents Mattel’s Adjusted Gross Profit, as a percentage of Net Sales . Adjusted Gross Profit and Adjusted Gross Margin are presented to provide additional perspective on underlying trends in Mattel’s core Gross Profit and Gross Margin, which Mattel believes is useful supplemental information for investors to be able to gauge and compare Mattel’s current business performance from one period to another.

Adjusted Other Selling and Administrative Expenses

Adjusted Other Selling and Administrative Expenses represents Mattel’s reported Other Selling and Administrative Expenses, adjusted to exclude severance and restructuring expenses, the impact of the inclined sleeper product recalls, and the impact of asset impairments, which are not part of Mattel’s core business. Adjusted Other Selling and Administrative Expenses is presented to provide additional perspective on underlying trends in Mattel’s core other selling and administrative expenses, which Mattel believes is useful supplemental information for investors to be able to gauge and compare Mattel’s current business performance from one period to another.

Adjusted Operating Income (Loss) and Adjusted Operating Income (Loss) Margin

Adjusted Operating Income (Loss) and Adjusted Operating Income (Loss) Margin represent reported Operating Income (Loss) and reported Operating Income (Loss) Margin, respectively, adjusted to exclude severance and restructuring expenses, the impact of the inclined sleeper product recalls, and the impact of asset impairments, which are not part of Mattel’s core business. Adjusted Operating Income (Loss) Margin represents Mattel’s Adjusted Operating Income (Loss), as a percentage of Net Sales . Adjusted Operating Income (Loss) and Adjusted Operating Income (Loss) Margin are presented to provide additional perspective on underlying trends in Mattel’s core operating results, which Mattel believes is useful supplemental information for investors to be able to gauge and compare Mattel’s current business performance from one period to another.

Adjusted Earnings (Loss) Per Share

Adjusted Earnings (Loss) Per Share represents Mattel’s reported Diluted Earnings (Loss) Per Common Share, adjusted to exclude severance and restructuring expenses, the impact of the inclined sleeper product recalls, and the impact of asset impairments, which are not part of Mattel’s core business. The aggregate tax effect of the adjustments is calculated by tax effecting the adjustments by the current effective tax rate, adjusting for certain discrete tax items, and dividing by the reported weighted-average number of common shares. Adjusted Earnings (Loss) Per Share is presented to provide additional perspective on underlying trends in Mattel’s core business. Mattel believes it is useful supplemental information for investors to gauge and compare Mattel’s current earnings results from one period to another. Adjusted Earnings (Loss) Per Share is a performance measure and should not be used as a measure of liquidity.

EBITDA and Adjusted EBITDA

EBITDA represents Mattel’s Net Income (Loss), adjusted to exclude the impact of interest expense, taxes, depreciation, and amortization. Adjusted EBITDA represents EBITDA adjusted to exclude share-based compensation, severance, and restructuring expenses, the impact of the inclined sleeper product recalls, and the impact of asset impairments, which are not part of Mattel’s core business. Mattel believes EBITDA and Adjusted EBITDA are useful supplemental information for investors to gauge and compare Mattel’s business performance to other companies in its industry with similar capital structures. The presentation of Adjusted EBITDA differs from how Mattel calculates EBITDA for purposes of covenant compliance under the indenture governing its 6.75% senior notes due 2025, the indenture governing its 5.875% senior notes due 2027, and the syndicated facility agreement governing its senior secured revolving credit facilities. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to invest in the growth of Mattel’s business. As a result, Mattel relies primarily on its GAAP results and uses EBITDA and Adjusted EBITDA only supplementally.

Free Cash Flow

Free Cash Flow represents Mattel’s net cash flows from operating activities less capital expenditures. Mattel believes Free Cash Flow is useful supplemental information for investors to gauge Mattel’s liquidity and performance and to compare Mattel’s business performance to other companies in our industry. Free Cash Flow does not represent cash available to Mattel for discretionary expenditures.

Leverage Ratio (Debt / Adjusted EBITDA)

The leverage ratio is calculated by dividing Debt by adjusted EBITDA. Debt represents the aggregate of Mattel’s current portion of long-term debt, short-term borrowings, and long-term debt, excluding the impact of debt issuance costs and debt discount. Mattel believes the leverage ratio is useful supplemental information for investors to gauge trends in Mattel’s business and to compare Mattel’s business performance to other companies in its industry.

Constant Currency

Percentage changes in results expressed in constant currency are presented excluding the impact from changes in currency exchange rates. To present this information, Mattel calculates constant currency information by translating current period and prior period results for entities reporting in currencies other than the US dollar using consistent exchange rates. The constant currency exchange rates are determined by Mattel at the beginning of each year and are applied consistently during the year. They are generally different from the actual exchange rates in effect during the current or prior period due to volatility in actual foreign exchange rates. Mattel considers whether any changes to the constant currency rates are appropriate at the beginning of each year. The exchange rates used for these constant currency calculations are generally based on prior year actual exchange rates. The difference between the current period and prior period results using the consistent exchange rates reflects the changes in the underlying performance results, excluding the impact from changes in currency exchange rates. Mattel analyzes constant currency results to provide additional perspective on changes in underlying trends in Mattel’s operating performance. Mattel believes that the disclosure of the percentage change in constant currency is useful supplemental information for investors to be able to gauge Mattel’s current business performance and the longer-term strength of its overall business since foreign currency changes could potentially mask underlying sales trends. The disclosure of the percentage change in constant currency enhances investor’s ability to compare financial results from one period to another.

Key Performance Indicator

Gross Billings

Gross Billings represent amounts invoiced to customers. It does not include the impact of sales adjustments, such as trade discounts and other allowances. Mattel presents changes in gross billings as a metric for comparing its aggregate, categorical, brand, and geographic results to highlight significant trends in Mattel’s business. Changes in Gross Billings are discussed because, while Mattel records the details of such sales adjustments in its financial accounting systems at the time of sale, such sales adjustments are generally not associated with categories, brands, and individual products.

 

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