MAT - Earnings call transcript Q3 2017

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Operator

Good day, ladies and gentlemen, and welcome to the Mattel, Inc.

Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time.

As a reminder, this conference call is being recorded. to host like Whitney today's now Steininger. would introduce for your call, I Ms. begin. you Steininger, may

Whitney Steininger

operator, you, afternoon. Thank good and

Joining me Officer; today Officer; Mattel's Richard are Financial Margo Georgiadis, Mattel's Chief and Mattel's President Chief Operating Officer. and Euteneuer, Dickson, Joe Chief Executive

To Margo, Mattel's take and this We'll guide financial you extended then help call Margo we'll reported today's your commentary providing for third and quarter provide As you presentation. Joe today, we Joe on discussion XXXX to we've know, a with afternoon with questions. and results. Richard begin our our time results, provided slide

which Our will margin adjusted such and measures our a operating valuation constant on and assets discussion gross profit, per the non-cash currency. or as exclude million gross adjusted and loss, $XXX tax selling adjusted share impact slide reference non-GAAP or adjusted allowance of related adjusted a earnings to establishment and charge administrative presentation gross from sales, expenses, we U.S. financial deferred the of income loss

Our in section also regarding corporate.mattel.com. is in documents Investors by available measures required corporate non-GAAP our and financial measures. Regulation included financial earnings are The includes earnings presentation, and G release the slide both release website, of our information non-GAAP

this to significant forward-looking a so. are the reports from Risk based to Report and XXXX Form of projected on materially XX-K, subject in expressly of filings results public XXXX and you update lines. Before accompanying relating that any well our may available obligation and statements We call number brands make our those they're made some our time currently statements. Mattel and include quarterly these actual our These XX-Q, forward-looking time, begin, section SEC describe to Factors Form disclaims release of that forward-looking with could differ does statements the like statements. presentation uncertainties earnings the the we to product our to of on from and in on information, uncertainties the and during do as I'd business, remind overall to other statements statements other we certain the risks cause call future performance in not as Annual

to to call over like I'd turn Margo. Now, the

Mary Margaret Hastings Georgiadis

everyone, Thank Whitney. for XXXX third you afternoon, call. Good for and joining thank you, quarter us earnings our

discuss brand discuss fund marketing also the also announcing capital to plan operations, Our we including today substantial performance how a out our investments discuss This roadmap how reflect certain critical the disappointing. share and Euteneuer, and significantly The to call. strong structurally towards the step provide challenges is here expanded our near-term in transformation underperforming our reshape Box and transformation strategy, alignment structure by run quarter A to we've we with clearly portion in strategy. make transformation further to business. provide QX will implementing the on invest of right-size plan. and brands our unlock the upcoming the timing cost Day. challenges, drivers. simplify plan results progress we profit third to growth transformation overview during exacerbated broader and in in will that was at the then XX Joe color discussed June. and Results right-size the chapter quarter in our enable progress Toy targets an and Q&A related TRU structure CFO, Despite to action against QX performance Then of made strategy to our Richard and new of detail the the our today's cost Investor resources drive laid our we in our our continued I milestones. progress our plan these continue and initiative plan our will plan Joe On and filing. will to our is I business, we us our will selected call, in in

on below Moving to Overall, results significantly our third results. were expectations. quarter

stable, June. the XX%. revenue, a We growth North we potential when quarter, In reflects company. in by international was expected led we and also a is health what down departure however, decline and do business Asia, not was American continued believe from you of this underlying somewhat This we the spoke of believe terms is in it to of unique this growth

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the with of a due expected in believe and for began quarter XX then early majority impacts we a profits filing, the higher proportion the realized given filing that I'll hit shipping revenue peers TRU to nature through issues each these long-term and to were in We September to our of the detail. are through filing. in compared significant time. in we certain we XX to we reverse connection on our both to these more walk chapter not turnaround about reduce potential concerns TRU. of revenue had drag sales disproportionately Fortunately, as was over The chapter in TRU significant and

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lower years. approximately retailer XX% is XX% XXXX in prior of the for of The transition to below hand second our XXXX power were brands driver decision weeks end incentive levels QX, to retail our to relative to At programs key on levels.

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North margins. The America, which to margins to were in QX. concentrated continued largely quarter, the Turning in sharply compress challenges in

positive of challenges, importance minutes. to several we few year. saw accelerated quarterly quarter. Despite growing quarter a during the Given and Barbie results, our Joe each this in globally is POS these provide the explanation will detailed trends this a double-digits

at strategy. As is and experiences, physical Barbie in Day, our Investor benefits the the we developing along farthest which execute systems when clear we shared demonstrates of play

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on focus and product to all collaboration design continue superior our with We partners. of

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plan create our launched IT streamlined across also new modernized a and by our our We Gerjets. infrastructure to CTO, business, have Sven led

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our products multiple recently in nine with driving new months. to three through process, hitting are approach We products launching all already new four through accelerated this

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process and optimize zero-based product brand SKUs XXXX better through across strategic key and drive localization for the in to line the areas percentages to reduce process in to of company allocate and We our merchandising are We smarter implementing all in existing spend budgeting differentiation. plan pillars. a XXXX double-digit optimization,

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We our culture. also are invested reigniting in deeply

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We and we've we are talk Joe summary, so In more restructuring we better align progress transformation challenges, we to and operate key reshaping effectively on enormous world, metrics, Mattel. that of the our will performance which our the incentive more a growing We're parents. demands our in positioned later. about substantial of with can the made terms kids organization, the future in allocation and demonstrated market. turn, the current significant with making in growing improvement is growth. the industry The We execution, allows plan. improvement the organization progress to We of planning, illustrates iconic to and own are transform for capitalize some funding believe margin a and headroom resource tomorrow's simplification for structural of to and as foundation in most well place, and now continue as in starting well in the the accelerate strategy, fastest profit incentives, in system program meet in jump momentum Despite will growth. believe brands ability

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and We and transformation profitability plan shareholder long-term are delivering committed value. deeply to our restoring maximizing

Joe. turn over Now it to I will

Joseph J. Euteneuer

pleased as my to CFO. everyone. Thank you, first, I'm join very good Margo, afternoon, today, Mattel's call the and

in brands portfolio have by by a Mattel such heritage, I to company's Mattel Let rich was pivotal saying to joined iconic its me impressive drawn of time and begin history. the partnerships. during thrilled I'm that

team In that in: historic bring experiences leadership leveraging to performance truly forward has I accountability with and develop addition, performance, core third path And work you past levels, this as point. value-creation, back together taken have to of I'll for values evaluation my XX-day factors the look assembled start I to Mattel already the leadership. Margo and my led the industry through partnership, and Margo growth Since sustainable, a exemplifies the believe quarter we execution. business to has future our

company detail some a a quarter the additional discuss foundation new how some the light company. provide on performance will then shed simplification. we on through underlying the structural building to for I of focus are I'll Next, on the

for well capital-related expectations performance and provide important as I'll near-term as initiatives. Finally, strategic our

We will then take your questions.

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Operator

question the first Greg line of our And comes you. Badishkanian Citigroup. from Thank with

open. Your line is

Gregory R. Badishkanian

think as Did seeing little Thomas why of in Great. third the Fisher-Price, overall trends that the there And Hot POS Wheels, well? were quarter mention the trends you you U.S.? a softening in bit

Mary Margaret Hastings Georgiadis

to Richard, that? take you want

Richard L. Dickson

brand, in We Barbie course, others and and do We've Girl confident, brand seen our Thomas. Hot ultimately, core follow. and Wheels of we're Greg, Barbie, Sure. narrative, on there's on continue Fisher-Price. significant very to the to certainly remaining most acknowledge progress, brand some the will, that American and particularly that work we strengthen

ask on as you key item products. Specifically, powerful Thomas, we've some got great

marketplace This new will key we in. that will, hit forward at with kick content quarter, really XXXX a favorable. introduce the to brand with to that Thomas looking you very, if that Super (XX:XX), Station we're went where very our really media really as is with And MIPCOM about

at We're like in our suggest. continue performing be year even hope particularly we're is And still POS continuously to what we good shipping levels. the look U.S. our to better Cars. core as brands brand Cars, we new to POS, up I narrative than As a confident, in for

Gregory R. Badishkanian

to POS number U.S. is put around a possible? you Are the or able that

Richard L. Dickson

us when our core was up at look we for POS Total brand slightly narrative.

Mary Margaret Hastings Georgiadis

Could just question just your we brands? Sorry, answer it? we Greg, about make you so was question specific repeat sure the

Gregory R. Badishkanian

did. you No, think I

And I think that other are inventories When seems do see would it be think where was and to helpful. for than you normalized, shipping sell-through you pretty more more be reducing similar? and the you, that'll retailers manufacturers. say, you as

Mary Margaret Hastings Georgiadis

that that we've a in the e-commerce the closely monitor I we demand-driven that towards of by e-commerce, as and pressure situation going always we shared remarks, expect trend be seen third is chunk have it of do obviously and seen bit inventory Greg, this XX%. downward our but There XX% forward. quarter. of of stabilization is that a And that at believe this worked due POS half will And supply through a to will What more So, shipping earlier. it, point. largely it's pivot that because majority chain, to sense that the little issue we explained the divergence to that roughly work we earlier we've of reduction between the articulated largely my biggest back through is we

Gregory R. Badishkanian

POS, the quarter going – is to So, fourth right? shipments will a reflect more of

Mary Margaret Hastings Georgiadis

But, fourth you quarters. a the over to align. and shipment expect, would the between quarter the of sales. the because two and time, is shipping have very POS yes, bit can a Well, obviously It little we quarter different the different be timing

Gregory R. Badishkanian

Right.

finally, Okay. early that. right? so wondering, for Toys Yeah. unusual an million for the I'm And "R" so So the slowed $XX September incremental just quarter? that's reversal, that's for quarter in Us, that fourth third I sales mean, an in quarter is Good. then addition to

Mary Margaret Hastings Georgiadis

Correct.

to of to you As of documents, as large "R" And of it difficult exactly to was. the we decision plan begin bankrupt, Us. public fully we potentially time that had shipping going to them understanding timing us to they some bankruptcy, exposure the a for understood shipments begin own timing know And because to settlement. took were not Toys reduce what then we were quite the the aware from until go the made we their again,

happened In days fact, a settlement final the ago. couple only of

So, in half they quarter. North the in than sales account of more the for decline American

Gregory R. Badishkanian

you that a you a to because was Is it's obviously been be bit if sales a so of Okay. similar little All sort those it of little lot let's say on to right. Is would where kind one-time up there shipments? a you sales, impacts impact growth were flat were seeing have the said of expect normalized where POS basis, – quarter? some eliminated, And to to because just one-time probably go-forward look bit? you would if are you finally, were or up at so that and a of this

Mary Margaret Hastings Georgiadis

Correct.

Richard L. Dickson

correct. Yeah,

the I answering stable in think is stuff you back and to just this getting start then to out, finding right get growth. you your that pathway fact back your totally

the I think So, nail yeah, on hit you the head.

Gregory R. Badishkanian

very Thank you much. right. All

Richard L. Dickson

Yeah.

Mary Margaret Hastings Georgiadis

Thank you.

Operator

next Thank from the you. Linda question Davidson. with Weiser our And of D.A. line comes Bolton

is open. line Your

Linda Bolton Weiser

hi. Yes,

a the East months that of opening causing that that or on also anything like there disruption the center similar year distribution some mentioned to also had or sort? You the up envision Is next you on new Coast. that in of margins to coming coming can due disruption

Richard L. Dickson

No. into an cause issue No. earlier quarter. little It's on the something bit caused third in a that XXXX horizon. the of that as Currently, nothing no year. plan, quarter We a cost haven't that into And we were situation that's ran there's nothing exiting of but we the would second we started year. similar next what but the blip, that I'm aware additional finished

Linda Bolton Weiser

Okay. were WellieWishers reversed? the kind mean, feel started to have are in to guess, to examine sort more And the in the with they be brands. I strategic Margo, sub-line as feel I that actually sense, to any with in you you've you taken Girl. there then and were strategies strategically the are just business a of the misplaced broader past regard that just the under regard certain I past that one actions there brands more, actions would be, that of mean, any damaging example of were a launching were to so brands? really American that as

Mary Margaret Hastings Georgiadis

and then and we're Now, of say we've been What opportunities understanding by to, is, play is we where is have how what one to clearer a overall trying our the company to framework want that can across about specific them biggest brands win. you very I each for and the one about shared us I of where compete. market, tell much a would against going through

brands our where with are. think not in be about or always do brands. for have much We more from so we opportunities go age to or And benefit tend ranges would our to of categories, significant think I focus our I expand some quickly, focused we some as depth opportunities into that far biggest of new

outrun in of tremendous to have I June, in very challenges stood really and addition and that In But years Monster that a center scale quality of SKU the back Disney products. the when Princess, of as level Joe corporate addition, really was of amount some of I on for High cost something system. made the targets quality sales of in as of one the back very just high earlier time progress bloated the of After supply putting to you premium lot relatively And value when that over made price number setting, which, a complexity, fully chain period, choices our issues hadn't a launched was you shared creep costs a resetting We those, the out experience. call, put as we've of we've around the the a as we Ever we previous anticipated try take were resulting in, large within saying, that kind drove the the center. some those which I propositions for up that, command it. brands, build to been and infrastructure with our that really in There in compound thing with so power the items foundation high High, think, we well strong

us on as are said things to us simplification streamline, program, the that I those for structural to focus the things think offer I the opportunities biggest on enormous So, opportunity.

we're about And excited so, meaner faster. I think going-forward plan and really the be to leaner,

Linda Bolton Weiser

very you Okay. Thank much.

Mary Margaret Hastings Georgiadis

you. Thank

Operator

question our line comes Markets. with next from And Capital Johnson BMO the Gerrick of

open. is line Your

Gerrick L. Johnson

Hey, thank have I you. questions. two

just Joe. bad charge debt million $XX you expense. the are a explain in Can First, sales for reversal? Others taking operating

toys. heard steps cooler process, what taking some toys, make just I've you're about And with doing things So, toys? reversal, Thank are sales that. a the a better lot rationalization accounting cost SKU you. are toys, more how And better not make and to savings, you wise, you what on lot But why? Margo, like fun

Joseph J. Euteneuer

you to is Sure. basis, period first this than which you first-out when In happens, look have is and reported on that revenue, last bankruptcy bad reversal, in stuff looking at means a in the stuff expense. of your the like a the receivables on Generally reversal regards Accepted debt a question your rather first-in at of Principles, Accounting actually situation the a

we're confident And was accounting And the that with our auditors. we it have. reviewed so, that something we in

Gerrick L. Johnson

Okay. Thank you.

Mary Margaret Hastings Georgiadis

at company, the values in what's that questions is to the of something with the important needed you that of we in on reignite. foundation this and completely put so agree fun absolutely on we'd more this creativity The toys, Gerrick, company. hallmark much place the your then, wonder that toys, And cooler are actually

our and talent and bringing external creative just and bringing to them leaders incredible brands together of places other the mix celebrating we have advantage and today, inspiration Rich's we're our where we enabling together, In the and all past really have under creativity. fairs the We're of distinctive thinking been in really created call quite out more from fact, speakers Creative across that Con, counsel had we and taking ties a really all there. we've really us to solid creative challenge something in really we've, that direction,

I'm In big a addition, believer.

online see them we need the core our excited And brands consistently It's kids. that this as those more the of things the they're to in ideas, of as it very you certain ensure other to breakthrough months us. combining wonderful take much focus to the in beginning insights, market If a it's kids at robotics be doesn't girls, materials, bring how to hottest boys both year such a wonderful things experience coming videos with as are with existing to very go to many market much both products market that within of And launched new We much and Kamigami. we've brought really today. of end. that less look example driven magical for and advantage with more by about technology nine media the It some appeals very execution and really insights do the we all inspire today, than launching from toys for we aggressive I'm and initiatives. that iconic and world. the and that well those of a to latest the in of groups to see unboxing are taking the opportunity

innovation actually, and versus to come the focus on company. really toys of Batbot the us The breakthrough a to example of the with in most creative the hot on And of for our has us create toys initiative, that supply free one for out we innovation which time at portion best when breakout example SKU really focus and continues of much marketplace. creep. as holidays. the innovation the that's SKU organization the opportunity And up to chain great that and enormous Imaginext, featured some great is our of creative of rationalization our Another will more inspiration been our

different actually localization the so on different and different have it versions us for focus actually things making We all for process harder were to many magic. retailers, those the

very we're So, in to company. the focus back to excited that get

Gerrick L. Johnson

Margo. you, Thank Great.

Mary Margaret Hastings Georgiadis

Thank you.

Operator

Arpine question the next our And Kocharyan line with from UBS. of comes

open. line Your is

Arpine Kocharyan

Hi, thanks.

brands you the $XXX reduction for about through some you right-sizing operating million. perhaps So, trying extent what of that line. the I'm the terms next understand in includes year? then, incremental comes it of this to about magnitude of words Could that? will understand I getting is million? does with million could flows to we implications top to sounds QX million benefit operating year the of of into rid Do right-sizing next cost this guess, mean is, of $XXX like been in that to a other kind the talk resetting I from for that in your an Does of your of million that it's clarify if for line? to that, margins benefit, thank have some overhang release, here And perspective, but, a base are half What hard top $XXX understand $XXX you? I And in you. margin forecast $XXX know very about

Joseph J. Euteneuer

Sure.

next $XXX yeah, and the third on in of your the assuming question, it going year first after. get million, year I So, we that two-thirds are think to we're a

would look hits way. line that year yes, a of it the the $XXX next same investments I you're $XXX and the at third million two-thirds If of the net million, in and it netting bottom Take the after. year number assume in against

Arpine Kocharyan

Yeah.

Mary Margaret Hastings Georgiadis

global it lot reason the was localized a of systematic to numbers could didn't practices. a a on by you lot the the about isn't company I revenue terms actually business, a We're markets SKU in driven of the that of is, one Each almost of gave that piece, way localization why have and the that on revenue, our attached request those creep dramatic in is think localization the process. product Arpine, much we a version list. of very of SKU the

the people a of amount lot return. of launch that drove version, their own you request when without new so, just the so complexity And things, many could

to Again, which there's In trend exclusives. not process want been an merchants an addition, industry for a increasing that centrally. that is was demand, was managed

et an for someone So, Australia, addition might the example, addition requested in to in in exclusive, to in the hypermarket in cetera. U.S., somebody have France

in of you of much the launches, a of of losses, by and market. terms as these some standardization of would lack not revenue there's So, driven merchandising, are issue think, across of tail localization, lack standardization factor things given long multiplication

cost why announcing of one comfortable a we revenue were out reasons lot impact. and initiative, much can of lot simplifying actually the because that's So the with streamlining larger take cost-reduction a across board, of a we by

We as Toy I the challenges way. worked High, think some as year, challenges end such brands, are this way our those Box through still largely bigger Monster After High. of our And our from loss was of Ever had in the that the those they that working it in large where – High We've was and year were Monster last I big as and fact even about talked year. fact large the Ever in you High, this very and decline, think was After I

largely about, think many by worked strong on We've year. performances, of example numbers Cars, those our way this through falls. large you had some if So, we've been for offset these continued they've but

and for more business. So, into a to Mattel, reset of we we to lot the our XXXX benefits run with look at as focus this how leaner we'll really then a see lot approach a year and transformation the start

Arpine Kocharyan

Very you. helpful thank

Mary Margaret Hastings Georgiadis

you. Thank

Operator

And Ng Sachs. our with Goldman of next line question comes from Michael the

open. is line Your

Michael Ng

question. you a the so I for Thank have couple. Great. much

bit model manufacturers? the manufacturing use to you Would the transitioning I some footprint facility and dig on reassess First, wanted to consider third-party ownership your of manufacturing little facilities in a restructuring asset-light and XXXX. an in of

Richard L. Dickson

Yes.

Michael Ng

Okay. that contemplate guys results reported you And recent that today? that you did did, renegotiation the did the covenant

Joseph J. Euteneuer

mean, No. before The results, before it our done was I here. covenant was I got

were think so they together, would I happen putting September, the for were quarter. themselves amendment guess, the it giving done in within well, So, the – before anything they it was that clearly, waiver in was I

they this guess, that anticipated they be want quarter. didn't caught in I to So,

be would answer the guess, yes. I yes, So,

Michael Ng

Okay.

and think So, may renegotiate good do to I into levels plan? your given covenant there's do XXXX Or then that those? differently, levels think a you are you for have risk you said the XQ current guess,

Joseph J. Euteneuer

Yeah.

XXXX. So, just look, to going have my in being think going new, said, we getting bottoms-up we're budget. And what as to do Margo the head I'm we're around

speak, we at So, that look adjust as going that. we're to take a and

continue are looking of to item in I'm thing capital find one along alternatives most that'll what other needs every the the of long-term the P&L, needs and trying the in take at going. line serve care I'm doing at the to structure to is, The cost-effective touching with the its and looking company

So, I any over look conclusions to every us. a but yet, are take turning we works come for stone at haven't to what

Michael Ng

just to Okay. grow stabilization can Do you're whether comment stabilization And the not guidance holds that XXXX? into about think revenue Great. assuming in a then Thanks. on you XQ. I'm just trying for in revenue that XXXX. or think

Joseph J. Euteneuer

Well, yeah.

then in the company. the XXXX quarters. to to regard we we'll we ends call a for full it think, is think revenue I that zero back of we're to in to when you get more back of we're about on growth to or got four year-end stable quarters to those of And forecasted The How some come give you going to and up see the in is, like ahead think us. some detail. growth re-growing I getting would the look, out. year, have stabilization talk it process So, look, idea, we start XXXX,

Michael Ng

you very Okay, Thank great. much.

Joseph J. Euteneuer

Yeah.

Operator

our with next of from Conder you. Tim Fargo Thank Securities. question And Wells comes the line

open. is line Your

Timothy Andrew Conder

far. Thank the appreciated. so Joe, you aboard, you. color thank welcome Very And much And for sir.

Joseph J. Euteneuer

Thank you.

Timothy Andrew Conder

so Box here. so of a that brands this. kind The there of logic? like, will here, of anything be Toy that me you a wants manufacturing correct sort XX% footprint the Joe, in vault, that of part potentially lot inventory last your go reduction own sort would up. you've assumption's and Margo, to my of chain please that. finalizing that flushed and take clearance wrong sounds things of it The you're Is if that through I'm forth, of whoever missing Many those into couple A of that also with and

Mary Margaret Hastings Georgiadis

I think tough different things through and own, in-sourced put trying that good Not very our to of chain. a at outsourced. a our the supply XX% we're today just chain but is all that's We're taking is logic. XX% look

of ordered we fragmentation, optimal. of plus talked lot small approach the of very started we combination earlier, the a so, forecasting many challenges a way high our quantities, which lot of as the a led to in with tail And down and scheduling, that SKUs have has about are in long of then been essentially worked quite where target not

very of number alignment alone, such the so, And we're we're able of trying gives we that that are when two plan set beginning of year, the tighter reduce the confident to to from things the make you a those SKUs how going the on then we'll beginning of talk going the want we about things like XXXX, also approach benefit existing forward. a your our vendor broader to drive investments into footprint. manufacturing your and and to manufacturing And strategic

Timothy Andrew Conder

Okay.

other there you're throw what call reduction seem very let's So beyond vault, the footprint potentially that considerations would in sound viable. that even basically, it like are it,

Mary Margaret Hastings Georgiadis

do vendor. you when when especially you runs, it's Very just and incredibly that inefficient you about the viable, think many short for

You just get pricing. optimal don't

a want because is able to And to the target we table. want for our know that some And do be sales system. make which we're faster, products our them, levels to do on able of our that, be then way partners, get in far to which sales structural supply to end-to-end our way opportunity retail SKUs both dramatically for less we'll enables our better we to provide the company things that we'll that there'll our so, And excited entire simplification, be on is number sitting to far we because set plans, and of improved. for setting sure be I market the chain also really our that the pressure just the addition really lot in-stock about

program can in discovered much of I together for into this this you really and got as more So, us June, that was kind imagine we've across deeply a differently it's of we're company put very a very to than exciting that so resources profile business that run up going going to be and have able forward. the we'll end-to-end actually this many different how business for free to

Timothy Andrew Conder

is to Okay. And that were continue alluding retail that functions, Mattel – or given maybe tends to in there. one that other that management, we see the part? another But, one industry? two adjustment, more was is do evergreen could step maybe then, XX% Margo, you also you the or you just others of at and given occurring function tighter have a said to that see than brands maybe How step

Mary Margaret Hastings Georgiadis

a little earlier, overhang worked to assess I saw as sure our we retail QX bit with inventories As at kicking it this of trend. that more we time We QX, structural of inventory a weren't the end And resetting into after was we as driven more with got that in. QX started trend a e-commerce. working shared partners, we did was a capital that from off their see were policies their us of new as and by spent working if we

e-commerce, a anticipating But that, would to to we downward always happen see the year. we hand system on perhaps incentive step and the the starting expect one-time to to QX, in decline the that little that a addition would we bit had, another that this we rapidly. that higher shared, into shift in of structural some adjustment had years. to pressure prior not stabilize as larger do function of think was And we others sales practices therefore, but weeks due we're exiting then it's this with In

Timothy Andrew Conder

Okay.

to Helpful. follow Okay. lastly, questions. just And up on of then the prior Joe, one

you As now be there's covenant variability, leverage end, do at that of year still anticipate looking know will sufficient? things that I million see you $XXX a lot

Joseph J. Euteneuer

October. into Look, we're only

We are a fourth having good anticipating quarter. pretty

we've the in given come our off to increase third quarter. what at We quarter the on looking profitability, things are doing

structure sure have to am alternative I make So, to our them. as the have that capital answer I and entire And don't know that actually just I look question. said, I the at I is

Timothy Andrew Conder

it. both. you, Thank Appreciate Okay.

Operator

Wissink from And line question our with you. Steph Thank next comes of the Jefferies.

Your line is open.

Stephanie Wissink

your ideas this Thank as your a that And How if we questions you. bit to out fewer Two in us then, in talk And for bigger gross about spread? of play rationalizing tail? costs? how should well. you as mean does well ad those a of balance could Margo, of that as about net you. some does the idea little spend SKUs, shorter from Joe, think

Just models? the that's motivate management the cost make structure into do $XXX team down Is does built question you your how sure incentive How savings? around Or incentive a around there million. below to play an that focused?

Joseph J. Euteneuer

Yeah. That's XXXX. why change great plan to a That's question. the both starting in going we're that we said incentive

takeouts improve that we achieve eye the these to need line. time, our on have cost balance, focused right? you the on we stay at sure and keep But, the – the a have making to profitability. ball You so can You same that need top we

we're line, taking going to if basis, think much get And then our the we'll top and holistic be company going I between forward. investments. on the expense out, that So, we profitability better that balance a focus a

Mary Margaret Hastings Georgiadis

much, we one Again, as the the the question much as about at we our was other portfolio we That of more organization so uncovered looks changes we an was your investment; answer level, all to across so Juliana significant moved challenge. a think was decision. advertising integrated this basis, And one a really have detailed brands. what I to we managing Chugg on on a leader now dug that that in key could of big brand made

allocate really were resources spending at looked brand. small these launches of that versus then do lot a disproportionately productivity, that we as we As we our on how our we detailed we much versus their core long were and as much about a thought even were, at more tail level, uncovering

investments, we we more double the really as around our I benefit a in optimize put core was the earlier, that it's believe can as in as brand investments properties for us in. that So, fact, well better sharing

So, forward. I making investments believe, we're return a going significant give that on the to this us, is going

Stephanie Wissink

a the had margins? stability What word But or a does mean past. that clarify, one rate comparable, whether further then expect does question. sales, mean stability used is flat This lot see that decline to the I overall? the nomenclature follow-up, you expect I And world don't to that in you just want if could. see And to been it's

Joseph J. Euteneuer

Sure.

fourth the to quarter? referring As

Stephanie Wissink

Just in general.

about that talk mean does yeah. you – As stability,

Joseph J. Euteneuer

decline, have thing are, a you So, out, get growth. so company the you to the turn is things up you in Right? to curve flat. to that's of first can back you sort When flatten been you do wherever just want

get trying stability is to So, just to flat.

Stephanie Wissink

it. Appreciate you. Thank

Joseph J. Euteneuer

way, flattening And back going one the a by you're to it's a take V, this out coming is, start to be and point be it's going sort remember, of U. to a it starts just It's going going and then bit up. other isn't little like to

out these a time love point in and up. does head you're point say a little things, going one It when of to want transition that you're you through boom, positivity. hit just back take back I flat and to bit I'd day to at to just So, its up

Stephanie Wissink

Thanks, Joe.

Joseph J. Euteneuer

you. Yeah. Thank

Operator

question next with comes our of line Barclays. from And Hendrix Felicia the

Your line open. is

Felicia Hendrix

Hi. start I Thank others. clarification to and you very few much. a with Wanted a have

want to be just earlier just you to in of to I more response productive. or much the When an in Margo, have line, question, specific. weren't impact those to an removing because Just, top about going the wasn't explained SKUs really you think relation that just had

a So, fair? $X-ish would company. of we're looking billion revenue a at that Is that be still company type

Mary Margaret Hastings Georgiadis

Fair.

Joseph J. Euteneuer

Yes.

Felicia Hendrix

slightly then wondering... Thank defined Joe, – operating And expenses. cost that over you the you. and savings is net Okay. XX% I'm of also

Joseph J. Euteneuer

No.

Felicia Hendrix

No?

Joseph J. Euteneuer

to have was was do I So, is, we've at billion got the to Well, you and drop it's just you the the $X.X where at you going goods expense what remember, And additionally not company, there look the of off then the if historically, come basically much a it's drive or So, goods in right? think other think you and really sold right? company versus cost what gross sold to line after this, to hitting need P&L. items of of a advertising, improved in margin the in SG&A include the cost revenue.

Felicia Hendrix

Okay.

help... you can So,

Mary Margaret Hastings Georgiadis

industry in de-scale as focused, in getting a up, would COGS simplified, Think with your line. we're alignment not level again, more and more cleaned A&P actually back, where then would about you machine a standard it when which that lean COGS more alignment. having deliver our quite your SG&A we expect, Getting

Felicia Hendrix

way there helpful us tell could just Yeah. what put was all is? it's think it you refreshing quite hear. sense the all number it I Is makes a No, that and to to gross context. in

Joseph J. Euteneuer

that going that question. because gross it to $XXX take line. going is $XXX mean, million, the than about to it only really million great net investments. fact the the reason a That's right the over I use we I are for bottom is years number, the we we're that said Other of think I said two the to

So that's about the way think it. to

Felicia Hendrix

to steady Okay. then, but you kind all long which takes was the and side think I stepping U? do talked more a this question, but about the And to tough on for of from helpful, is you a get get this, of the other how just the think it back of productive U, company To realize I state?

Joseph J. Euteneuer

Yeah.

doing a good. look, core So, I'll which have I our top only two five guy you give are is of who's we mean, brands, great, at really I the look one line, opinion. When here been XX-days

I Margo you about time need can and talk there that, have this our – of issues time. of issue the You little runway cycle a when but here you in it, a fix. room happens heard around, turned because got thing the the improvement cycle is, what is that of executional lot trying at mean, are think in look get we're I to of others we two I confidence you ability

things, growth, the medium-term those line, obviously, a all first hit to think help will do. increase I the we across out, before are do a is things just of to from integration moving perspective, the and as we what get cost plan the I move we line better the on margins need need us top we speed think focusing and

easiest And line bottom think on I've only you way out, build been speed of and out, I it's And the help fast line. I momentum work can only thing very the starting line, the So, to top XX expense line that on the to hurting take that we're bottom but top the trying is it I'm getting contribution. the not the here obviously doable. done you on get the is but and how days, without

Felicia Hendrix

do "R" your Okay. American "R" whoever Richard we else kind became to to brand made an Toys previously, as that Helpful. How on Toys it reduce the partner Kohl's. may or Us American at And when or it presented about on distribution the one decisions think time, some an also have Girl along call, the with then, was were And exposure important you reinvigoration that is of Margo Us? Girl, be of partners of there. because of

Richard L. Dickson

be, as of here our American on the consumer this. and to our quality But, which We're that We're all to premium place, and Counts, ultimately have something had several to driving they I'll to content the appeal essentially in but starting always have are house programs to drive start that So, there refresh mentioned program narrative. building positioning of it's as leveraging on messaging you, engagement to a In that And the in are with of we're new launching to marketing along to of purchase store can optimize historically. also opening essentially month, ensuring City sort objective significantly new you, about in step new data really you the York right American this I of customer by aspects And is investments, style franchise. new Girl. we're (X:XX:XX) Girl We're extent, build, and and marketing. Margo to relationships, continue return and our products a mentioned the store the not that's service to I driving we bring And the premium experiences called girl well, essence going we'll brand our New both a fix overnight, working collection. Character new call-in. is way, the status. flagship path I to see our And, to place to out excited there. as later premium the get many that of hope will what back this some

Felicia Hendrix

Okay. Thanks, guys.

Richard L. Dickson

You're welcome.

Operator

line our And question the Drew next you. Thank Stifel. from of Crum with comes

Your line is open.

Andrew Edward Crum

afternoon, Good thanks. everyone. Okay,

think Joe, the with I identified respect reduction. largest you margin to cost as opportunity So, gross

XX%. over obviously XX% last margin peaked mix that's the at the of dolls margin sales Today of about gross drastically business, under at and mix, XX% years gross has couple pressure. look back has about was when you changed around XX%, in the your been If gross XXXX, the pretty of

an this margin or aside impediment the you see maybe to an profile it's business mix do opportunity? from and of improving logistics, tooling So, reducing gross as

Joseph J. Euteneuer

Yeah.

and going an and latter two back lost you the totally first when and cost of think what have that on, opportunity. but you are the an said a of deal, Princess is is, things to increase takeout outrun sprinting I a Monster revenue. for do of started look the That's the half High, historically at as on, it company know? SKUs a And at fact We for you view your So, brands, when XX% that should sudden that's Disney non-core was The loss of the big in this spot (XX:XX:XX). all your trying any just opportunity. go you

there So, do we do view can I think I are and as an things it there, opportunity.

Andrew Edward Crum

the because structure Are maybe about is emerging just separately, business structure balance of thematic versus Margo, you And strategic one and to growth and markets this call. you identified right-sizing realigning breakeven, key cost willing reaching that on be talk cost growing size you've seems for Okay. how to the pillars business. the

profitability versus markets. about So, emerging just talk balancing growth for

Mary Margaret Hastings Georgiadis

are multiple investing already for of We very, our the a we're shareholders the markets. ROI emerging about our disciplined emerging So, we very very are size have we're of high-growth absolute on profitable. markets strong how focused in that actually against opportunity. And extremely

and us where top establish a that, a be opportunity rising you've leader So, got as a for and literally where the market breakout to income. got is like to baby then then boomers place for policy, into China, on and age. for tolerance And as you've window moment the in the there kids our clear parents differentiated of for ability in move two-child got, X you've example, would higher the a ourselves investment Xx child-bearing

accelerating opportunity for an just that's So us.

So, we over-invest. should

very in I those of think with we're taking we those With, stepwise in change are enter particularly partnership first, and model. some those can Asia, markets and an us of more about that such and cost they Alibaba others thinking for there's a and the other in sort more leverage countries, so the of scale we efficient opportunity effectively go digital into how to game many could a places. into approach in markets, very as

coming approach sharing So, you with we're it. industry. to quarters be in very the the disciplined one And over this given more a that taking do is believe opportunities we we'll the of exciting most

Andrew Edward Crum

guys. Thanks, Okay.

Operator

our Thank with question the SunTrust. from Mike And Schwartz next comes you. line of

Your open. line is

Michael A. Swartz

talked just had Hey, in touch to good Margo, you your I want on remarks. something afternoon, about everyone. that prepared briefly Yeah.

growth the of what term. in had opportunity how get see out some well? some more that market numbers you Could of core you're about anticipating – think thrown little I the of a us you for maybe growth period and you you terms brands there, longer color and as just during give

Mary Margaret Hastings Georgiadis

terms the the what mean? that gave in and of that examples Sure. referring that refresh you to Are Fisher-Price we've Barbie Is you done? I

Michael A. Swartz

Yes.

Mary Margaret Hastings Georgiadis

brands the track XXX-degree for the rate, Wheels, at core growth. as I And the created of the the then play industry, was diversification about. most see you iconic well us systems markets add just at the of some in you of work, case When look quickly attachment the out example, those opportunities key and both for our driving our get as your systematically across we've the we pretty Hot continuing a markets, that strength car, for laid and of example, we've back attractive in talked up side, and to terms where in as as of experiences segment, us I modest So, have if you construction those on portion for numbers. taking Day, some Investor of of you set

both terms existing we we of adjacencies at by looking layer share at at where categories, then to in in that right these market. a have looking looking and win, key would how sized we've So, our

in obviously, one is that. feel other achievable growth the also We've do And So, at, the And rate, we similar of these moving also versus confident. Wheels, we we've a done circumstances. think market one, track pattern. the the right, then case actually past. that's have the our we benchmark done that for in how the sets, construction different obviously, it's player for for and slightly right? what profile play in each is of Barbie, brands. growth obviously, For rate XX% and that Hot play the And the sets been share obviously, pretty people each into we've industry the think what and looked In about of attachment, doll the We've size before. been

stronger platform you been around like Fisher-Price margin exit have as how as a doll we side, the of different of again, much extending categories. on player some across some bigger footprint well our innovating and about the of more but a is really historically, player And much and decisions So, things think regaining experiences. our that and other we'd reasons that, for the

thought consistently her to quite about get these the be and for executing the you place to wants China, that you two us doing the numbers of mom in and consistently enormous five, If need range Fisher-Price, again, zero well, a from easily, brand products for plus everything as a like now which baby is number that perfect. you to opportunity can don't

Michael A. Swartz

years. That's helpful. $XXX the then, Thank net reductions you. couple in cost of And with Joe, next the just million

I do you said didn't by but I sequencing the us you You about it, of goods think buckets, it. cost if apologize by SG&A? But A&P, hear how that year, gave sold,

Joseph J. Euteneuer

and I the or but get should I that, I to where look you historically pretty can a this as any SG&A think how stuff and to attack margin think, like close sales didn't company what on and to be percentage that, I would specific give going benchmark thing. you gross at we're of just tell guidance

Michael A. Swartz

you. Okay. That's helpful. Thank

Joseph J. Euteneuer

Yeah.

Operator

question our the comes from MKM Eric And you. Thank next line Handler of with Partners.

Your line is open.

Eric O. Handler

on the I for want Thanks questions. Yes. a brands. different focus to couple

doll; Girl something that on at sense you current company think channel brand? Entertainment all-time maybe was Girl maybe HIT the and you all the bricks the with the about And the Thomas, was make the those somewhere. think the strength retail, at Thomas, think since then vault high. of why margin think than How And it is you lot to retail? it maybe when acquired, brand there's First, gross Thomas about but pretty American Thomas does or brands, do with and vital focus the much mortar you then, expense and shrink brands HIT and the with you meanwhile, And of of presence, online to that then seems sort a guys, about more an American the predates of expanding And this get and decay. is as state do in shuttered nearly back? locked probably fell, a or you have were a of other how brands you been and what store HIT, like it

Mary Margaret Hastings Georgiadis

these in So, let turn. me take

is that excellence property franchise. really that back hallmark And opportunity and Girl historically. just that direct really that business consumer American First, a to enormous the to regenerate phenomenal was of we have get to

us. of we It's very always terms the profitable store optimizing franchise the a footprint, things. those of returns be In for will

for So, resetting content-driven the stage growth passion of product CRM built and of of about view, sustain for times. do franchise. It's the other and how the one we that actually steady more the most it's, my in initiatives all engagement much franchise, the beloved consumer through the still

of IP in really into library the incredible terms acquisition, that parts. take I've has. company as The In I'll HIT that two looked this Thomas,

in Thomas. on taking the One of how into of against we kids of fully mentioned priorities not my call and IP our I which of because content then, advantage terms family of were for rights one over the opportunity IP one the think, of the thought we IP, the we best And world. opportunities dovetails in back ensure I to was, things the we that of development, had about portfolios taken have was the had that control

those to Thomas' again, did but very competitive new just as and leverage in content. and launched. terms the we of the market, should actually those were well quick we I'm the should company punch a franchise, challenge – when as think that I really have, speak the I the refreshing have I but updating can't assets. we past, not still been as capability. they not as beloved development have but a to incredibly capabilities content excited is still content purchased think we we about had strong incredible we IP probably Thomas,

got elements search can the to We MIPCOM right reviews. I online. is launched Thomas getting moms. of which in addition, girl really out we with it zone teach for in we just about of is like in he's partnered to the categories. Sodor incredibly we're You at and what it having of rave three And feel sustainability, And new have We've the traveling kids key world. know Thomas of UN the some millennial important matters.

So, its beloved modernized, successful China It the in market instantly. actually wonderful we're success out of the if the box really just take We and job we done We've part We and where be September. a do sells there just launched is that Thomas movie but that extremely Thomas, a with to two a localize play really engine. number pattern and And office needed was significant. theatrical you of during making in it period. a culture. popular like

markets. So, for supporting we enormous good job across franchises we've know returns talked this the franchise company, we execute when a these not but Day on Investor deliver consistently as I we well, done at

reasons structure of things Richard, approach So, manage to our very Richard differently, the an aligned I driving are extremely our you Richard across a how reporting add one accountability how kind and think markets. know are and international franchises if directly don't out flattened of anything. and and I we to in different want to could we develop we with

Richard L. Dickson

thing outside in Thomas. of is the I can add HIT of only portfolio the The context

to of X particularly looking property Story, we're brands the and looking are our monetize within some Bob certainly they are have great intellectual Mattel, have focus like context to announced of associated and Builder, start in are some Sam. place to various in to properties. the monetize necessarily partners with as and Fireman DHX We HIT Angelina, those the that deals key reactivate that portfolio, within but IP for brands These different Barney, not

Eric O. Handler

just follow-up. your there? a licenses. spoke you Very or And the Investor view to And one after today, that At given about Analyst Great. all? more Day, at statements changing other helpful. is your go need Day, your lot What's

Mary Margaret Hastings Georgiadis

globally been close take out year, rave partnership we with how excited really demonstrates in put and excited at about has to that's Richard are close focus people and the we market retailers the office received In to innovative the to Cars, we're Universal, Jurassic close, cornerstone Richard. come our to and The both remarks partnerships then Our creative that the and the license fact our as I carry box world about product, designs, like the ability level. And of globally. about with franchise our partners, our slow emphasized partnerships to the excited our are my I as products the ability are of way success initial it innovation take partnership Universal. incredibly our think from franchise and of take literally And business. well ahead, that a what's a Disney next Disney, across working Brothers, take Disney, We've all earlier, can next retail. those Warner our reviews that with in with with to that targets real initial capabilities the leveraging line they company, weekly WWE despite in U.S., at that and that

Richard L. Dickson

I twofold. Box was part of Yeah. strategy Toy mean, that originally

course, brands entertainment job XXXX look was mentioned, one League, properties that of But to some community, we Brothers, the reestablish the in partnerships Margo Justice Of and believe to the the progress, also mentioned. which great we partnership haven't some as end Warner of done a of great I we've which indicative this noting, year. the like is launching with new at made from

new which a we'll And that we're in also the of at has clean brand So, with excited we about. Warner incredibly Brothers, end also nice Aquaman, have also have XXXX XXXX, a slate.

and look will pronounced as of across our and look of ultimately many, other more a resources things partnerships So, to aspects partnership bigger were key bigger these is in we And mentioned, better as things, to better a and the enhance we redeploy way. and many that that and fewer fewer fragmented component benefit those reinforce type strategy.

Eric O. Handler

you. Thank

Operator

And I'm turn Whitney showing time. you. I would not back Steininger Thank remarks. call for questions to closing this the to now like any further at

Whitney Steininger

a of is, PM The webcast link via audio an call in audio can our participating at all dial this be and password on XXXXXXXX. will for today's There today. call. be X please beginning found replay, for webcast XXX-XXX-XXXX. or you replay available Thank Eastern Time The page, investor

Operator

disconnect. for have you and Everyone all today's thank the program, This conference. in gentlemen, Ladies great may day. and participating a you does conclude

Mattel (MAT) 26 Oct 172017 Q3 Earnings call transcript