Mattel, Inc. (MAT)

Q2 2010 Earnings Call Transcript

July 16, 2010 8:30 am ET

Executives

Dianne Douglas – IR

Bob Eckert – Chairman and CEO

Kevin Farr – CFO

Analysts

Linda Bolton-Weiser – Caris

Sean McGowan – Needham

Robert Carroll – UBS

Drew Crum – Stifel Nicolaus

John Taylor – Arcadia Investments

Michael Kelter – Goldman Sachs

Hayley Wolff – Rochdale Securities

Margaret Whitfield – Sterne, Agee

Felicia Hendrix – Barclays Capital

Presentation

Operator

Good day, ladies and gentlemen, and welcome to Mattel’s second quarter 2010 earnings conference call. At this time, all lines are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator instructions) And as a reminder, this is being recorded. I would like to introduce Ms. Dianne Douglas. Please go ahead.

Dianne Douglas

Thank you, Mary. As you know, this morning we reported Mattel's second quarter 2010 financial results. In a few minutes, Bob Eckert, Mattel's Chairman and CEO, and Kevin Farr, Mattel's CFO, will provide comments on the results and then the call will be opened for your questions.

Certain statements Bob and Kevin make during the call may include forward-looking statements relating to the future performance of our overall business, brands and product lines. These statements are based on currently available operating, financial, economic, and competitive information and they are subject to a number of significant risks and uncertainties, which could cause our actual results to differ materially from those projected in the forward-looking statements.

We described some of these uncertainties in the Risk Factors section of our 2009 annual report on Form 10-K as well as in our quarterly reports on Form 10-Q and in other filings we make with the SEC from time to time. Mattel does not update forward-looking statements and expressly disclaims any obligation to do so. Information required by Regulation G regarding non-GAAP financial measures is available on the Investors & Media section of our corporate website, mattel.com, under the headings Financial Information and Earnings Releases.

Now I would like to turn the call over to Bob.

Bob Eckert

Thank you, Dianne. And good morning, everyone. What a difference a year makes! Last year at this time, Mattel, along with many other consumer goods companies and retailers, was lamenting how much further the economy was going to decline. And while reports remain mixed on whether or not we are out of the woods, I can tell you that I’m very pleased with the company’s performance for the quarter with worldwide net sales up 13%, reflecting good performance in the US as well as internationally, and continued improvement in our profit margins.

Our positive top-line sales trend in this quarter in both the US and abroad benefited from our newest entertainment properties, Toy Story 3, World Wrestling Entertainment, and Thomas and Friends, as well as solid growth from core brands such as Barbie and Hot Wheels. As it relates to Barbie, the core fashion, beach and accessory product lines continue to perform well. In our spring entertainment offering, Barbie in Mermaid Tale nicely outperformed last year’s movie.

Our I Can Be line, driven by a very strong spring promotional program, continues to perform well at retail. And I’m proud to report that the Barbie leadership team hasn’t missed a beat and is continuing to drive the brand to deliver on fashion, aspiration and cultural relevance. I know there is a lot of interest in the watch of our Monster High franchise, which has just begun.

We know girls are becoming engaged with the brand as evidenced by the millions of Monster High episodes downloaded in the website. The Justice apparel program is just rolling out to more than 900 stores nationwide, and the Monsters will be taking over YouTube’s home page this summer with an all new Monster High music video.

Toy advertising begins around the back-to-school timeframe, which also coincides with sales of the first Little, Brown hardback chapter book, which hits retail in September. In the Wheels item, Hot Wheels performance has been solid, driven by both core play with basic tires and track sets, as well as the feature product lines like Custom Motors and Color Shifters.

And we are excited about the Matchbox launch and Stinky the Garbage Truck, following on the successful launch of Rocky the Robot Truck last year. These characters are now part of the new Big Rig Buddies line, which we are introducing to kids this fall via CGI animated episodes being packed with the products.

And of course, there is the incredible success of this year’s summer movie, Toy Story 3. Not surprisingly, our Toy Story 3 lines are selling well across all businesses, including infant and preschool, action figures, collectibles, play sets, vehicles, roll play, Barbie and Ken dolls and games. And now that Spain has taken home the World Cup title, the movie will be hitting theaters in the European markets.

The World Wrestling, WWE sales continue to be strong, driven not only by our core line that appeals to collectors, but by the Flexforce toys, which are more kid-focused and feature driven. As I said before, what’s most exciting about our newest license properties is that we expect them to perform more akin to evergreen toy brands than one hit wonders, which charter well for our business not only in 2010, but beyond.

In the infant and preschool, our Fisher-Price Friends business performed quite well, with Dora the Explorer rebounding nicely, and of course the addition of Thomas and Friends. We are also looking forward to Dora’s ten-year anniversary, which Nickelodeon is kicking off this fall.

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