Mattel, Inc. has reported third quarter 2020 financial results.
Ynon Kreiz, Chairman and CEO of Mattel said: “This was a very strong quarter for Mattel. We saw a major upswing in topline and a significant increase in profitability as we continued to make meaningful progress towards becoming an IP-driven, high-performing toy company. The toy industry, as a whole, grew significantly and continues to demonstrate its resilience in challenging economic times. Mattel’s growth outpaced the industry as we gained share in key markets around the world and achieved growth in each of our four regions.”
Mr. Kreiz continued: “Based on the POS momentum we are seeing, the low retail inventories and the early start of the holiday shopping season, we expect Net Sales and Gross Sales to grow in the fourth quarter. Looking to the full year, with continued operational savings and margin expansion, we expect to see strong Net Income and EBITDA growth and remain focused on creating long-term shareholder value.”
Anthony DiSilvestro, CFO of Mattel said: “We had an outstanding quarter with results exceeding our expectations. In spite of the pandemic, we have continued to make meaningful progress towards our strategy to restore profitability and regain topline growth. We are very pleased with the continuing improvements in Gross Margin, a key driver of our overall financial performance, as we continue to benefit from our cost savings programs. We believe we are well-positioned to maintain this momentum.”
For the third quarter, Net Sales were up 10% as reported, and up 11% in constant currency, versus the prior year’s third quarter. Gross Sales were up 10% as reported, and up 11% in constant currency. Reported Operating Income was $384.2 million, up 156%, and Adjusted Operating Income was $401.3 million, up 131%. Reported Earnings Per Share was $0.91, an improvement of $0.71 per share, or 355%, compared to earnings per share of $0.20 in the prior year. Adjusted Earnings Per Share was $0.95, an improvement of $0.69 per share, or 265%, compared to adjusted earnings per share of $0.26 in the prior year.
For the first nine months of the year, Net Sales were down 2% as reported, and down 1% in constant currency, versus the prior year’s first nine months. Gross Sales were down 3% as reported, and down 1% in constant currency. Reported Operating Income was $188.2 million, an increase of $216.5 million, versus the prior year’s first nine months’ Reported Operating Loss of $28.3 million, and Adjusted Operating Income was $242.7 million, up 417%. Reported Loss Per Share was $0.01, an improvement of $0.61 per share, compared to a loss per share of $0.62 in the prior year. Adjusted Earnings Per Share was $0.14, an improvement of $0.55 per share, compared to an adjusted loss per share of $0.41 in the prior year.
COVID-19 Business Update
Mattel’s top priority has been to protect the health and safety of its people and at the same time mitigate the disruption of the COVID-19 pandemic to the business. Mattel is working closely with its retail partners on the challenge of meeting consumer demand heading into the holiday season and is mindful of the COVID-19 volatility and other macro-economic uncertainties, which could negatively impact performance. Mattel’s supply chain is fully operational as Mattel chases the extraordinary growth in consumer demand for its products. Mattel expects to continue benefitting from cost savings related to the Structural Simplification and Capital Light programs and from additional actions taken in 2020 in response to COVID-19. Liquidity is expected to be sufficient to manage effectively through further disruption and to continue to execute Mattel’s strategy.
Financial Overview
For the third quarter, Net Sales in the North America segment increased 13% as reported and in constant currency, versus the prior year’s third quarter.
Gross Sales in the North America segment increased 13% as reported and in constant currency, primarily driven by growth in Dolls (including Barbie®), Action Figures, Building Sets, Games, and Other (including Star Wars™: The Child plush, card games, including UNO®, Jurassic World®, and Pictionary®, partially offset by Toy Story 4), and Vehicles (including Hot Wheels® and CARS®). This was partially offset by declines in Infant, Toddler, and Preschool (including Fisher-Price Friends and Fisher-Price® and Thomas & Friends™).
Net Sales in the International segment increased 8% as reported, and 11% in constant currency.
Gross Sales in the International segment increased 7% as reported, and 10% in constant currency, driven by growth in Dolls (including Barbie), Action Figures, Building Sets, Games, and Other (including Scrabble®, card games, including UNO, and Jurassic World, partially offset by Toy Story 4), and Vehicles (including Hot Wheels). This was partially offset by a decline in Infant, Toddler, and Preschool (including Fisher-Price Friends).
Net Sales in the American Girl segment decreased 1% as reported and in constant currency. Gross Sales in the American Girl segment decreased 2% as reported and in constant currency. Net and Gross Sales declined primarily due to lower sales in proprietary retail channels, mostly offset by higher direct-to-consumer sales.
Reported Gross Margin increased to 51.0%, versus 46.3% in the prior year’s third quarter, and Adjusted Gross Margin increased to 51.0%, versus 46.9%. The increase in Reported and Adjusted Gross Margin was primarily driven by cost savings, reduced royalties, and favorable category mix.
Reported Other Selling and Administrative Expenses decreased by $20.3 million, or 6%, to $345.7 million. Adjusted Other Selling and Administrative Expenses decreased by $22.5 million, or 6%, to $328.9 million. The decrease in Reported and Adjusted Other Selling and Administrative Expenses was primarily driven by the incremental benefit of Structural Simplification cost savings.
For the nine months ended September 30, 2020, Cash Flows Used for Operating Activities was $434 million, compared to $514 million in the prior year, an improvement of $80 million. This was primarily driven by a lower Net Loss, excluding the impact of non-cash charges, partially offset by higher working capital usage. Cash Flows Used for Investing Activities increased by $37 million to $115 million, primarily due to payments for foreign currency forward exchange contracts and higher capital spending. Cash Flows Provided by Financing Activities and Other increased by $155 million to $371 million, primarily driven by net proceeds from short-term borrowings of $400 million in the first nine months of 2020.
Sales by Categories
For the third quarter, Worldwide Gross Sales for Dolls were $690.5 million, up 22% as reported, and up 24% in constant currency, versus the prior year’s third quarter, primarily driven by growth in Barbie.
Worldwide Gross Sales for Infant, Toddler, and Preschool were $404.1 million, down 6% as reported, and down 5% in constant currency, primarily due to declines in Fisher-Price Friends and Fisher-Price and Thomas & Friends.
Worldwide Gross Sales for Vehicles were $369.4 million, up 6% as reported, and up 8% in constant currency, primarily driven by growth in Hot Wheels.
Worldwide Gross Sales for Action Figures, Building Sets, Games, and Other were $354.5 million, up 14% as reported and in constant currency, primarily driven by growth in Star Wars: The Child plush, card games, including UNO, Jurassic World, and Pictionary, partially offset by declines in Toy Story 4, post its movie launch year.