Barbie, Hot Wheels Up; Mattel Full-Year Down 8 Percent
Mattel’s full-year and fourth quarter 2018 financial results are in, with Barbie and Hot Wheels shining through as two bright spots along with its operating costs.
For the year, net sales and gross sales were both down 8 percent as reported, and down 7 percent in constant currency, versus the prior year. This reflects the negative 6 percent impact from the Toys “R” Us (TRU) liquidation and a negative 2 percent impact from the slowdown in Mattel’s China business. Reported operating loss was $237 million, an improvement of $103 million versus the prior year, and adjusted operating loss was $115 million, an improvement of $92 million versus the prior year. Reported loss per share was $1.54, an improvement of $1.53 versus the prior year, and adjusted loss per share was $1.14, an improvement of $0.07 versus the prior year.
Fourth quarter saw a 5 percent drop in net sales and a 3 percent loss in constant currency, versus the prior year’s fourth quarter. Gross sales were down 11 percent, and 9 percent in constant currency reflecting a negative 8 percent impact from the TRU liquidation and a negative 2 percent impact from the slowdown in its China business. Reported operating income was $107 million, an improvement of $358 million, and adjusted operating income was $113 million, an improvement of $276 million, versus the prior year’s fourth quarter. Reported earnings per share were $0.04, an improvement of $0.86 versus the prior year’s fourth quarter.
Ynon Kreiz, Chairman and CEO of Mattel, said: “Our fourth quarter results demonstrate meaningful progress in executing our strategy and significant improvement over last year. We remain focused on advancing our strategy to restore profitability and regain top-line growth in the short-to-mid-term and are laying the groundwork to capture the full value of our IP in the mid-to-long-term. After three consecutive quarters of solid, disciplined execution, we are well on our way to becoming an IP-driven, high-performing toy company and creating long-term value for our shareholders. Among all the achievements in 2018, I would like to applaud our team for regaining the #1 toy company position globally in a year full of challenges and headwinds. This is a great moment to celebrate, before we go back and continue the hard work of implementing our multi-year turnaround.”
Joseph Euteneuer, CFO of Mattel, added: “Our key financial metrics, including gross margin, operating income, and earnings per share, are all moving in the right direction and our cost savings initiative is ahead of plan entering 2019. Looking forward, we have ample opportunities to improve our financial performance across the board as our business strategy continues to gain traction in the marketplace.”
Financial Overview
For the year, net revenues in the North America segment decreased by 4 percent (gross revenues were down 5 percent, and 4 percent in constant currency), primarily driven by a 12 percent impact from the TRU liquidation. Net sales also decreased 7 in the international segment (5 percent in constant currency).
For the year, reported gross margin improved to 39.8 percent versus 37.3 percent in the prior year. Adjusted gross margin improved to 40.0 percent versus 37.7 percent in the prior year. The increases in reported and adjusted Gross Margin were primarily driven by Structural Simplification cost savings of $177 million and lower obsolescence expense, partially offset by inflation in the cost of raw materials and plant labor. Reported Other Selling and Administrative Expenses decreased by $13.1 million versus the prior year to $1.5 billion. Adjusted Other Selling and Administrative Expenses decreased by $10.8 million versus the prior year to $1.4 billion, primarily driven by Structural Simplification cost savings of $165 million, partially offset by incremental incentive compensation of $65 million and TRU net bad debt expense of $32 million.
For the fourth quarter, net sales in the North America segment decreased by 6 percent as reported and in constant currency, versus the prior year’s fourth quarter. Gross sales in the North America segment decreased by 10 percent as reported, and 10 percent in constant currency primarily driven by a 17 percent impact from the TRU liquidation. Net sales in the International segment increased 2 percent as reported, and 7 percent in constant currency, versus the prior year’s fourth quarter. Gross sales in the International segment decreased by 7 percent as reported, and 2 percent in constant currency reflecting a negative 4 percent impact from the slowdown in our China business and a 3 percent impact from the TRU liquidation.
For the year, Cash Flows Used for Operating Activities were $27 million, which was in-line with the prior year. Cash Flows Used for Investing Activities were approximately $161 million, a decrease of approximately $75 million, versus the prior year, primarily driven by lower capital spending. Cash Flows Used for Financing Activities and Other were approximately $297 million, which included a debt repayment of $250 million in the first quarter of 2018.
Sales by Brand
While full-year gross sales for Mattel Power Brands were $3.45 billion, down 3 percent (2 percent in constant currency), gross sales for Barbie were up 14 percent (15 percent in constant currency), primarily driven by positive POS brand momentum. Hot Wheels was also up 7 percent (9 percent in constant currency), primarily driven by Hot Wheels’ 50th anniversary. Gross Sales for Fisher-Price and Thomas & Friends were down 13% as reported, and in constant currency, primarily driven by lower sales of Fisher-Price infant and Thomas & Friends products. Net sales for the American Girl segment decreased by 26 percent as reported, and 25 percent in constant currency, versus the prior year’s fourth quarter. Gross sales for the American Girl segment decreased by 27 percent and in constant currency, primarily due to lower sales in proprietary retail and direct channels, and a strategic shift away from external distribution channels.
Q4 gross sales followed a similar pattern across Power Brands.
Mattel Toy Box, which includes Owned Brands and Partner Brands, took a big hit for full-year and Q4. Gross sales for full-year were down 16 percent, while fourth quarter saw a 21 percent drop. Gross Sales for Owned Brands were down 10 percent, primarily driven by lower sales of MEGA products. Gross Sales for Partner Brands were down 23 percent as reported, driven by lower sales of CARS products, which offset the initial strong sales of Jurassic World products. Q4 gross sales followed a similar patterns for Mattel Toy Box Brands.