Mattel Management Discusses Q2 2012 Results - Earnings Call Transcript

Mattel (MAT)

Q2 2012 Earnings Call

July 17, 2012 8:30 am ET

Executives

Drew Vollero - Senior Vice President of Investor Relations

Bryan G. Stockton - Chief Executive Officer, Director and Member of Equity Grant Allocation Committee

Kevin M. Farr - Chief Financial Officer

Analysts

Gerrick L. Johnson - BMO Capital Markets U.S.

Timothy A. Conder - Wells Fargo Securities, LLC, Research Division

Margaret B. Whitfield - Sterne Agee & Leach Inc., Research Division

Robert W. Carroll - UBS Investment Bank, Research Division

Felicia R. Hendrix - Barclays Capital, Research Division

Linda Bolton-Weiser - Caris & Company, Inc., Research Division

Eric O. Handler - MKM Partners LLC, Research Division

Michael A. Swartz - SunTrust Robinson Humphrey, Inc., Research Division

Sean P. McGowan - Needham & Company, LLC, Research Division

Michael Kelter - Goldman Sachs Group Inc., Research Division

Andrew E. Crum - Stifel, Nicolaus & Co., Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Mattel Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Drew Vollero, Senior Vice President of Corporate Strategy and Investor Relations. Please begin.

Drew Vollero

Thanks, operator. As you know, this morning, we reported Mattel's second quarter financial results. We provided you with a slide presentation to help guide our discussion today. The slide presentation and the information required by Regulation G regarding non-GAAP financial measures is available on the Investors & Media section of our corporate website, corporate.mattel.com.

In a few minutes, Bryan Stockton, Mattel's 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 made during the call may include forward-looking statements related to the future performance of our overall business, brands and product lines. These statements are based on currently available information. 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 describe some of these uncertainties in the Risk Factors section of our 2011 annual report on Form 10-K and our 2012 quarterly reports on Form 10-Q and in other filings we make with the SEC from time to time, as well as in other public statements. Mattel does not update forward-looking statements and expressly disclaims any obligation to do so.

Now I'd like to turn the call over to Bryan.

Bryan G. Stockton

Thank you, Drew, and good day, everyone. Looking at our second quarter results, we executed well and delivered solid performance despite the backdrop of a very challenging global economic climate that's driving volatility in input costs and currencies, as well as creating a very cautious global retail environment. Additionally, we faced a difficult sales comparison with the release of the Cars 2 movie last year. We met the challenge of delivering a comparable level of sales by focusing on our priorities, including growing our core brands, evergreen entertainment properties, our most recent franchise, Monster High, and key international markets.

For the first half of 2012, we experienced solid progress in core brands and markets. Overall shipments were up for the quarter, resulting in improved alignment of shipments, consumer takeaway and retail inventories for the first half. And I believe we are well positioned for the second half and the all-important holiday season. While we continue to absorb the impact of the strengthening U.S. dollar, our international business, including countries such as Brazil, Mexico, the U.K., China and India, is growing when you exclude the impact of currency.

I am optimistic about the growth prospects for the global toy industry. For perspective, about 1/3 of the global toy category is in the U.S. While NPD data shows the U.S. total toy category down mid-single digits through May 2012, that trend is not consistent across all categories. Most of the categories in which we play are outperforming the total category growth rate through May 2012. Additionally, Mattel continues to gain share in important categories such as infant/preschool dolls and vehicles during the same time period. NPD data also indicates that Europe, despite its recent economic challenges, remains relatively stable through May 2012, reinforcing our belief that the toy industry holds up well in the tough economic times. Using NPD data, that represents about half of the total toy industry. And our global and market experience, we continue to see overall global toy industry growth due to positive demographic trends and toy spending in emerging and developing markets.

As I've said on several occasions, one of Mattel's greatest assets and points of difference is our diverse portfolio of brands, countries and customers. And for the quarter, we experienced strength across all areas. While still early in the year, we experienced good momentum across many of our core brands: Barbie, Hot Wheels and American Girl, as well as strong growth in our Monster High franchise. And we saw positive momentum across a number of our licensed entertainment brands: Disney Princess, with the new movie Brave; Batman, The Dark Knight Rises; Disney's new Jake and the Never Land Pirates; and WWE.

Let's start with the Barbie brand, which experienced a strong second quarter. According to NPD through May 2012, Barbie continues to gain doll supercategory share, both in the U.S. and the Euro 5. We continue to see strength in Barbie's core fashion lines and this year's spring entertainment, Mermaid Tale 2, which was also a growth driver in the quarter.

Addition to spring entertainment, we did an extensive brand campaign that's been activated across toys, apparel and accessories in more than 70 countries. The campaign invites girls of all ages to see what happens when they play with Barbie. This May, we launched our first older-girl content with Barbie's Life in the Dreamhouse with 15 episodes to give girls a glimpse into Barbie's life with her sisters, pets, friends and, of course, her boyfriend, Ken. The campaign launched in 21 languages on Barbie.com and on YouTube and, since early May, has generated 5 million views across the website and YouTube globally. Feedback with older girls has been incredibly positive.

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