Mattel Reports Q3 2016
For the third quarter of 2016, Mattel reported worldwide net sales were flat as reported, and were up 2 percent in constant currency, versus the prior year. Worldwide gross sales were flat as reported, and were up 1 percent in constant currency. Reported operating income was $317.4 million, and adjusted operating income was $324.1 million. Reported earnings per share were $0.68, and adjusted earnings per share were $0.70.
“In the third quarter, we continued to make solid progress against our strategic priorities, and we are pleased with our momentum as we head into the holiday season,” said Christopher Sinclair, chairman and CEO of Mattel. “Our core brands continue to show improved strength and vibrancy, contributing to very encouraging and broad-based top-line momentum. And we continued to manage costs effectively, while making important investments in brand building, commercial excellence, and emerging market expansion. Overall, our strategies are generating good progress on many fronts, and while we still have a critical fourth quarter to execute, we remain broadly on track to deliver on our full-year outlook.”
Third quarter net sales in the North American Region, which consists of the United States, Canada, and American Girl, increased by three percent as reported and in constant currency, versus the prior year. In the International Region, net sales decreased by four percent as reported, and were flat in constant currency. Third quarter gross sales in the North American Region increased by one percent as reported, and were up two percent in constant currency. In the International Region, gross sales decreased by three percent as reported, and were up one percent in constant currency. Gross margin decreased 60 basis points, driven mainly by the negative impact from changes in currency exchange rates. Reported other selling and administrative expenses decreased $15.1 million and adjusted other selling and administrative expenses decreased $5.2 million, reflecting continued cost improvement initiatives.
Reported operating income for the quarter was $317.4 million, compared to the prior year’s reported operating income of $300.8 million. Adjusted operating income for the quarter was $324.1 million, compared to the prior year’s adjusted operating income of $317.4 million. Mattel’s debt-to-total capital ratio as of September 30, 2016 was 50.2 percent.
For the nine months ended September 30, 2016, net cash flows used for operating activities were approximately $331 million, an increase of approximately $109 million versus the prior year, primarily driven by higher working capital usage and lower net income. Cash flows used for investing activities were approximately $205 million, a decrease of approximately $1 million versus the prior year, primarily driven by changes in foreign currency forward exchange contracts, partially offset by payments for acquisitions. Cash flows used for financing activities and other were approximately $60 million, compared to approximately $254 million in the prior year, primarily driven by proceeds from the issuance of long-term debt partially offset by higher net repayments of short-term debt.
The board of directors declared a 2016 fourth quarter cash dividend of $0.38 per share, which is flat compared to the fourth quarter of 2015. The dividend will be payable on December 9, 2016, to stockholders of record on November 22, 2016.
Sales by Brand
Mattel Girls and Boys Brands
For the third quarter, worldwide gross sales for Mattel Girls & Boys Brands were $1.06 billion, down 5 percent as reported, and down 4 percent in constant currency, versus the prior year. Worldwide gross sales for the Barbie brand were up 16 percent as reported, and 17 percent in constant currency, versus the prior year. Worldwide gross sales for Other Girls brands were down 50 percent as reported, and down 46 percent in constant currency, versus the prior year. Worldwide gross sales for the Wheels category, which includes the Hot Wheels and Matchbox brands, were up 6 percent as reported and in constant currency, versus the prior year. Worldwide gross sales for the Entertainment business, which includes Radica and Games, were up 16 percent as reported and in constant currency, versus the prior year.
Fisher-Price Brands
Third quarter worldwide gross sales for Fisher-Price Brands, which includes the Fisher-Price Core, Fisher-Price Friends, and Power Wheels brands, were $661.5 million, up 6 percent as reported, and up 8 percent in constant currency, versus the prior year.
American Girl Brands
Third quarter gross sales for American Girl Brands, which offers American Girl-branded products directly to consumers, were $125.5 million, up 14 percent as reported, and up 15 percent in constant currency, versus the prior year.
Construction and Arts & Crafts Brands
Third quarter gross sales for Construction and Arts & Crafts Brands, which includes the MEGA Bloks and RoseArt brands, were $118.6 million, flat as reported, and up 6 percent in constant currency, versus the prior year.
Hasbro Reports Q3 2016
Hasbro, Inc., reported financial results for the third quarter 2016. Net revenues for the third quarter 2016 increased 14 percent to $1.68 billion versus $1.47 billion in 2015. Third quarter 2016 revenues include a negative $2.8 million impact from foreign exchange.
Net earnings for the third quarter 2016 increased 24 percent to $257.8 million, or $2.03 per diluted share, compared to $207.6 million, or $1.64 per diluted share, in 2015. Adjusted net earnings for the third quarter 2015 were $200.5 million, or $1.58 per diluted share. These exclude a pre-tax gain of $9.9 million, or $0.06 per diluted share, from the third quarter 2015 sale of the company’s manufacturing operations in East Longmeadow, Mass., and Waterford, Ireland.
“Innovative play experiences, engaging storytelling, and global execution of Hasbro’s Brand Blueprint continues to drive consumer and retailer demand for our brand portfolio,” said Brian Goldner, Hasbro’s chairman, president and CEO. “2016 has been a strong year, including our third quarter, which marked the greatest revenue and earnings quarter in Hasbro’s history. We are well positioned for what we believe will be a good holiday season.”
Third quarter 2016 U.S. and Canada segment net revenues increased 16 percent to $932.8 million compared to $803.8 million in 2015. Revenue growth in the Girls and Games category more than offset declines in the Boys and Preschool categories. The U.S. and Canada segment reported 22 percent operating profit growth to $228 million, or 24.4 percent of net revenues, compared to $187.1 million, or 23.3 percent of net revenues, in 2015.
International segment net revenues increased 13 percent to $690.7 million compared to $612.6 million in 2015. Revenues grew in the Boys, Girls, and Preschool categories, and was flat in the Games category. On a regional basis, Europe grew 16 percent, Latin America increased nine percent, and Asia Pacific was up one percent. Emerging markets revenues increased 16 percent in the quarter. Excluding an unfavorable $3 million impact of foreign exchange (FX), International segment revenues grew 13 percent, increasing 17 percent in Europe ($0.5 million negative FX impact), 12 percent in Latin America ($3.2 million negative FX impact) and one percent in Asia Pacific ($0.7 million favorable FX impact). Emerging markets increased approximately 15 percent absent the impact of foreign exchange. As reported, International segment operating profit grew 17 percent to $133.1 million, or 19.3 percent of net revenues, compared to $114.2 million, or 18.6 percent of net revenues, in 2015.
Entertainment and Licensing segment net revenues increased eight percent to $56.1 million compared to $52.1 million in 2015, driven by growth in Consumer Products and Digital Gaming. The Entertainment and Licensing segment operating profit decreased 13 percent to $14.1 million, or 25.1 percent of net revenues, compared to $16.2 million, or 31.2 percent of net revenues, in 2015.
Boys category revenues for the third quarter increased two percent to $605.5 million. Revenue growth in the quarter was driven by gains in Franchise Brand Nerf and Transformers, as well as shipments of Yo-kai Watch.
Games category revenues for the third quarter increased 13 percent to $409.5 million, behind growth in multiple gaming formats including face-to-face gaming, off-the-board gaming, and digital gaming. Franchise Brand Magic: The Gathering revenues increased in the quarter, along with growth in Pie Face, Duel Masters, and a number of other brands.
Girls category revenues for the third quarter increased 57 percent to $462 million. The category benefited from shipments of Hasbro’s line of Disney Princess and Disney’s Frozen fashion and small dolls and DreamWorks’ Trolls as well as growth in Baby Alive and Furby products.
Preschool category revenues for the third quarter declined eight percent to $202.8 million. Revenue growth in Franchise Brand Play-Doh was more than offset by declines in Playskool Heroes and core Playskool items.
Dividend and Share Repurchase
Hasbro paid $64 million in cash dividends to shareholders during the third quarter 2016. The next quarterly cash dividend payment of $0.51 per common share is scheduled for November 15, 2016, to shareholders of record at the close of business on November 1, 2016.
During the third quarter, Hasbro repurchased 598,800 shares of common stock at a total cost of $48.4 million and an average price of $80.87 per share. Through the first three quarters, the company repurchased 1,344,411 shares of common stock at a total cost of $106.2 million and an average price of $78.97 per share. At quarter-end, $373.1 million remained available in the current share repurchase authorization.
Jakks Reports Q3
Jakks Pacific, Inc., reported financial results for the third quarter ended September 30, 2016. Third Quarter Overview:
- Net sales totaled $302.8 million
- Gross margin was 31.4 percent
- Operating margin was 11.4 percent
- Net income was $30.6 million, or $0.82 per diluted share
- Inventory levels declined 8 percent year-over-year.
Third Quarter 2016 Financial Results
Net sales for the third quarter were $302.8 million compared to $337 million in the third quarter of 2015. The decline was due to the suspension of shipments by Jakks to a major U.S. customer, the negative impact of the Brexit vote and subsequent devaluation of the British pound, a timing lag in international sales caused by shifting to direct-to-retail distribution, and lower-than-expected sales of some movie-licensed products.
Gross margin in the third quarter was 31.4 percent, up modestly from 31 percent last year as a result of continuing margin expansion efforts, partially offset by product mix shifts and the deleveraging effect of the decline in sales. Operating margin was 11.4 percent, down from 13.2 percent last year due to the sales decline and the deleveraging of fixed costs.
Reported net income attributable to Jakks Pacific for the third quarter of 2016 was $30.6 million, or $0.82 per diluted share, which includes an aggregate of charges of $4.2 million, or $0.07 per diluted share, related to the resolution of prior litigation and multi-year license audit. This compares to net income attributable to Jakks Pacific of $45.8 million, or $1.12 per diluted share, in the same year-ago quarter, which includes non-cash income of $5.6 million, or $0.09 per diluted share, related to the reversal of previous earn-out accruals from the 2012 acquisition of Maui Toys. Adjusted EBITDA for the third quarter was $42.8 million, down from $52.5 million in the year-ago quarter due to the sales decline.
“In the third quarter, most of our product lines performed as expected,” said Jakks Pacific chairman and CEO, Stephen Berman, “but we made the decision to suspend sales to a major U.S. customer that is experiencing challenges. In addition, the negative impact of the Brexit vote and the subsequent sharp drop in the value of the British pound decreased the purchasing power of our customers. The expansion of our direct-to-retail international sales network also caused sales to be recognized later in the year. Finally, we faced pressure from disappointing sell-through of some licensed product lines tied to motion pictures, which did not meet expectations. Our gross margins, however, were relatively in line with our internal forecast.”
Berman continued. “Domestically we saw strong consumer demand during the quarter for Tsum Tsum and Gift ‘ems collectibles, Nintendo figures and plush, and Disney Princess products. We have strong expectations for fourth quarter sales of several Disney properties, including Pixar’s Moana movie-inspired toys, Elena of Avalor dolls and roleplay toys, the Frozen Northern Lights Elsa doll, and Star Wars Rogue One Big-Figs. Looking ahead to 2017 we currently expect to see revenue growth coming from three areas. First, our existing core business should continue to benefit from the introduction of exciting new products based on owned IP as well as licenses, and the continued expansion into new geographies. Second, we recently announced the acquisition of C’est Moi, a new and rapidly growing maker of skin care and makeup products aimed at kids engaged in the performing arts. Third, we have launched Studio JP, a joint venture with our Chinese distribution partner Meisheng Culture & Creative Corp., to produce high-quality, animated content based on owned IP. All three areas are part of our ongoing effort to add faster growth and higher margin sources of revenue to our sales mix. We have just finished our fall 2017 toy preview with customers from around the world, and we are also encouraged by the positive response to both our spring and fall product lines,” said Berman.
Working Capital
As of September 30, 2016, Jakks’ working capital was $247.6 million, including cash and cash equivalents and restricted cash of $48.2 million, compared to working capital of $271.6 million, including cash and cash equivalents and restricted cash of $81.2 million at September 30, 2015.
Revised 2016 Outlook
Jakks revised its previously issued outlook for 2016, which had anticipated net sales of approximately $800 million, earnings of approximately $0.78 per diluted share and adjusted EBITDA of approximately $65 million. For the full year 2016, the company now expects net sales to grow by 1 percent to approximately $755 million with earnings to approximate $0.56 per diluted share and adjusted EBITDA to grow by four percent to approximately $53 million. By comparison, net sales in 2015 were $745.7 million with earnings of $0.71 per diluted share and adjusted EBITDA of $50.9 million. Reflected in the revised guidance is gross margin for the full year of 31.8 percent, down slightly from the prior outlook of 32 percent.
Share Repurchase
During the third quarter, Jakks repurchased 172,751 shares of its common stock at an aggregate cost of $1.5 million, or an average of $8.69 per share, bringing the total amount returned to shareholders through stock and convertible note repurchases to $29.3 million under the $30 million program authorized in June of 2015.
Mattel, Hasbro, Jakks on TTPM’s Most Wanted List
Mattel, Hasbro, and Jakks all reported their Q3 results this week. All three toymakers have items on TTPM’s Most Wanted list. See it here. For the latest in Toys, Tots, Pets, and More as well as what’s trending, visit TTPM.com.