Mattel, Inc. (MAT) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals a positive outlook with strong revenue growth, strategic investments in digital games, and entertainment expansion. The Q&A highlights potential growth in the Infant, Toddler, and Preschool segment, strong performance of Mattel Brick Shop, and positive impact from the Masters of the Universe movie. Despite some uncertainties, such as cost pressures and unclear guidance on tariffs, the overall sentiment is positive with expected improvements in gross margins and strategic initiatives enhancing brand value.
Key Financial Performance
Net Sales Grew 4% as reported and 1% in constant currency to $862 million. The growth was ahead of expectations.
Adjusted Gross Margin Declined 450 basis points to 45.1%, primarily due to the gross cost impact of tariffs, unfavorable foreign exchange, and inflation.
Adjusted Earnings Per Share Declined by $0.18 to a loss of $0.20, primarily due to higher advertising expenses, lower adjusted gross profit, and higher adjusted SG&A expenses.
Gross Billings Grew 2% in constant currency. Vehicles increased by 13%, while Dolls declined by 11% and Infant, Toddler, and Preschool declined by 18%. Challenger categories collectively increased by 17%.
Free Cash Flow Declined to $335 million on a trailing 12-month basis compared to $582 million in the prior year period, primarily due to lower net income excluding the impact of noncash items.
Retailer Inventories Declined low double digits compared to the prior year, indicating better positioning for Q2.
Owned Inventory Increased modestly to $677 million, primarily reflecting tariff-related costs.
Cash at Quarter End Decreased to $866 million compared to $1.24 billion a year ago, primarily due to share repurchases and acquisition costs.
Total Debt Remained consistent with the prior year.
Advertising Expenses Increased by $23 million to $93 million, reflecting the timing of Easter and inclusion of Mattel163 expenses.
Adjusted SG&A Expenses Increased by $19 million to $366 million, primarily due to strategic investments.
Adjusted Operating Income Reported a loss of $70 million compared to a loss of $8 million in the prior year period, primarily due to higher advertising expenses, lower adjusted gross profit, and higher adjusted SG&A expenses.
Adjusted EBITDA Reported a loss of $12 million compared to a gain of $57 million, primarily due to the same factors impacting adjusted operating income.
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Operating Highlights
Hot Wheels, UNO, Monster High: These brands grew double digits or higher in the quarter.
Mattel Brick Shop: Performed exceptionally well and continues to expand following a successful launch.
Masters of the Universe: A new self-published mobile game is in soft launch ahead of the theatrical movie premiere on June 5.
UNO-branded digital games: Launched on Roblox and Fortnite with strong reach and engagement.
International markets: Gross billings grew 8% with growth in EMEA, Latin America, and Asia Pacific.
North America: Declined 4% due to shifts in U.S. retailer ordering patterns but expected to grow in Q2.
Mattel163 acquisition: Acquired full ownership of Mattel163 Mobile Game Studio, strengthening the digital games business.
Cost efficiencies: Achieved $16 million in savings in Q1 as part of the optimizing for profitable growth program, targeting $50 million in 2026.
Strategic investments: Investing $150 million in 2026 to drive growth in areas like self-published mobile games, building sets, and D2C.
Leadership change: Sanjay Luthra appointed as Chief Commercial Officer, succeeding Steve Totzke.
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Risk or Challenges
Geopolitical Events: The ongoing war in the Middle East is being monitored, though it has had minimal impact on the business to date. However, the situation remains fluid and could pose risks to operations and market conditions.
Tariffs: The gross cost impact of tariffs has negatively affected adjusted gross margin by 240 basis points, contributing to a decline in profitability.
Foreign Exchange and Inflation: Unfavorable foreign exchange rates and inflation have negatively impacted adjusted gross margin by 140 and 90 basis points, respectively.
Decline in Key Product Categories: Dolls and Infant, Toddler, and Preschool categories experienced declines of 11% and 18%, respectively, which could impact overall revenue growth.
North America Sales Decline: North America sales declined by 4%, partly due to shifts in U.S. retailer ordering patterns from direct import to domestic shipping. While stabilization is expected, this remains a risk.
Strategic Investments: Approximately $150 million in strategic investments are planned for 2026, which could strain short-term profitability despite expected long-term ROI.
Leadership Transition: The departure of Steve Totzke as President and Chief Commercial Officer introduces potential risks related to leadership continuity and strategic execution.
Retailer Inventory Levels: Retailer inventories declined low double digits compared to the prior year, which could impact future sales if not managed effectively.
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Guidance & Outlook
Toy Industry Growth: The toy industry grew in the first quarter and is expected to grow in 2026, supported by a toyetic theatrical slate and expansion of adult consumers.
Digital Strategy: Mattel is integrating Mattel163 and launching two self-published mobile games in 2026. The first game, based on Masters of the Universe, is in soft launch ahead of the movie premiere in June, while the second game is targeted for release later this year.
Theatrical Releases and Product Lines: The Masters of the Universe movie will be released globally in June, accompanied by a cross-category product line. The Matchbox movie is set for October, with additional films in development, including Hot Wheels, Polly Pocket, Barney, and Rock 'Em Sock 'Em Robots.
Strategic Investments: Mattel plans to invest approximately $150 million in 2026 to drive growth and profitability, focusing on self-published mobile games, building sets, D2C, first-party data, and technology infrastructure. These investments are expected to yield high ROI and contribute positively to the bottom line in 2027 and beyond.
2026 Financial Guidance: Net sales are expected to grow 3% to 6% in constant currency, with adjusted gross margin projected at approximately 50%. Adjusted operating income is forecasted between $580 million and $630 million, and adjusted EPS is expected to range from $1.27 to $1.39.
Category Performance Expectations: In 2026, vehicles and challenger categories are expected to grow strongly, dolls are projected to remain comparable, and Infant, Toddler, and Preschool (ITPS) categories are expected to decline.
2027 Outlook: Mattel anticipates mid- to high single-digit revenue growth in constant currency and strong double-digit growth in adjusted operating income, driven by brand strategy, innovation, partnerships, and returns from strategic investments.
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Shareholder Return Plan
Share Repurchase Program: Mattel repurchased $200 million of shares in the first quarter of 2026. This is part of a broader $1.5 billion share repurchase authorization, which the company expects to complete by the end of 2028. Since resuming share repurchases in 2023, Mattel has repurchased a total of $1.4 billion worth of shares, reducing shares outstanding by approximately 21%. The company plans to buy back a total of $400 million of shares in 2026.
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Key Q&A
Q:What is the company's exposure to resin and freight costs, and how are they managing potential cost pressures?
A:The company sees minimal impact on their business year-to-date but continues to monitor the situation closely. They reiterated their full-year guidance, including gross margin of approximately 50%. The impact depends on the duration of disruptions and elevated oil prices. They have a team managing the situation and are experienced in handling such scenarios.
Q:What drove the better-than-expected top-line growth in the quarter?
A:The growth was driven by standout brands like Hot Wheels, UNO, Monster High, Masters of the Universe, and Mattel Brick Shop, as well as partner brands like Toy Story and WWE. Consumer demand was positive, and the toy industry is in a healthy position. The company saw acceleration in shipping quarter-to-date for the second quarter.
Q:What does the APA tariff rollback mean for the company, and how does it impact their guidance?
A:The guidance includes a range of assumptions and scenarios related to tariffs. The company expects actions taken back in 2025 to offset the annualized dollar cost impact of 2026. The tariff situation is fluid, and the guidance does not factor in refunds due to uncertainty.
Q:What is the progress on the company's digital strategy and investments in digital games?
A:The integration of the JV is tracking according to plan, and the acquisition advances their digital games business. Investments are focused on self-published mobile games, building sets, B2C, first-party data, and technology infrastructure. The first game based on Masters of the Universe is in soft launch, with metrics meeting expectations. A second game is in advanced development and will launch later this year.
Q:What is the outlook for the Infant, Toddler, and Preschool segment?
A:The segment is expected to be a 2%-3% headwind this year, with the drag becoming smaller. Growth is expected in key segments like Little People, driven by partnerships with Nintendo and Disney. The company plans to relaunch Thomas in the second half of the year with new content and products. They continue to assess the business and its potential.
Q:What are the strategic initiatives and organizational changes the company is implementing?
A:The company is shifting to a brand-centric strategy to grow their brands holistically. Toys remain a key pillar, but they aim to leverage success in toys to grow outside the toy aisle. They are focusing on brand marketing and holistic management to create demand and drive higher margins and stronger performance.
Q:What is the potential of Mattel Brick Shop, and how is it performing?
A:Mattel Brick Shop is performing well, with strong consumer demand and double-digit growth. The product combines expertise in cars and building sets, featuring high-quality materials and design. The company sees significant runway for growth in this category.
Q:Why is the company investing in the mobile gaming industry, and how do they measure success?
A:The company believes their strong brands give them a unique advantage in the competitive mobile gaming industry. Development costs are low, and user acquisition is driven by performance marketing. Their branded games have shown strong engagement without marketing, and they expect good execution to deliver significant returns.
Q:What is the expected impact of the Masters of the Universe movie on earnings?
A:The movie is already driving awareness and strengthening relationships with fans. Product sales are growing double-digit, and the movie is expected to appeal to both older fans and new audiences. The company expects it to drive toy sales and contribute to double-digit growth.
Q:How does the company view the impact of commodity and freight prices on their guidance?
A:The company acknowledges they are not immune to cost pressures, but the guidance remains intact as it depends on the duration of disruptions and elevated oil prices.
Q:What is the expected sales cadence for the year, and how has retailer inventory posture changed?
A:The company expects acceleration in gross billings in Q2 and stabilization in U.S. retailers' ordering patterns. They anticipate growth in the North America region in the second quarter and strong performance in the second half of the year.
Q:What is the update on the strategic review of the Infant, Toddler, and Preschool segment?
A:The company continues to assess the business and its importance within the toy industry. They plan to provide more details in the future.
Q:What is the target for investment spending, and how is it progressing?
A:The target for investment spending is $110 million for the year, excluding $40 million for user acquisition. The company is tracking on plan and expects high ROI with net positive contribution to the bottom line in 2027 and beyond.
Q:Why was CapEx high in the first quarter, and what is the guidance for the year?
A:CapEx was $65 million in Q1, the highest since 2017, due to investments in infrastructure. The company expects CapEx to remain within 3%-4% of net sales, consistent with their capital-light orientation.
Q:How does the company view the impact of potential tariff refunds on gross margins and pricing?
A:The company is not speculating on future tariff rates or refunds. They work closely with retail partners, but retailers set prices. The guidance does not factor in refunds due to uncertainty.
Q:What is the outlook for gross margins for the year?
A:The company expects gross margins to improve sequentially, reaching approximately 50% for the year. Q2 margins are expected to remain below 50% but improve in the second half.
Q:What is the outlook for SG&A and advertising expenses?
A:SG&A increased due to strategic investments, and advertising expenses were affected by Easter timing. The company is tracking to their overall expectations for the year.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer regarding the strategic review of the Infant, Toddler, and Preschool segment, stating only that they continue to assess the business and will provide more details in the future. Additionally, they did not provide clarity on the potential impact of tariff refunds on gross margins and pricing, citing uncertainty.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Chief Commercial
Commercial Officer
DC
Dolls
EMEA
Em
Hot Wheels
Masters Universe
Mattel
Middle East
Preschool
UNO
acquisition
amortization asset
benefit
billing
brand Hot
cash
category
contribution
currency
digit
game development
generation
information
investment
measure
partnership
period
product line
release slide
sale
self game
slide presentation
MAT Transcript
Mattel, Inc. (MAT) Q1 2026 Earnings Call Transcript
Positive4-30
The earnings call reveals a positive outlook with strong revenue growth, strategic investments in digital games, and entertainment expansion. The Q&A highlights potential growth in the Infant, Toddler, and Preschool segment, strong performance of Mattel Brick Shop, and positive impact from the Masters of the Universe movie. Despite some uncertainties, such as cost pressures and unclear guidance on tariffs, the overall sentiment is positive with expected improvements in gross margins and strategic initiatives enhancing brand value.
Mattel, Inc. (MAT) Presents at UBS Global Consumer and Retail Conference Transcript
Neutral3-12
Mattel, Inc. (MAT) Q4 2025 Earnings Call Transcript
Unknown2-10
The earnings call presents a mixed picture: while there are positive elements like a strong holiday season outlook, strategic investments, and significant share repurchases, there are also concerns such as declining operations income, conservative retailer behavior, and cautious guidance for 2026. The Q&A reveals uncertainty in specific metrics and a transition year impacting the bottom line. The balance between these factors suggests a neutral stock price movement prediction.
Mattel, Inc. (MAT) Presents at Morgan Stanley Global Consumer & Retail Conference 2025 Transcript
Neutral12-3
MAT Slides
MAT Report
Frequently Asked Questions
Where does this earnings call transcript come from?
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