Third Quarter 2026 Earnings Conference Call - MATTEL INC

Explicit Guidance:

• Full-Year 2026 Net Sales: Revised to 1–4% growth in constant currency.
• Full-Year 2026 Adjusted Gross Margin: Revised to approximately 48% (excluding tariff refund benefits recognized YTD and potential future refunds).
• Full-Year 2026 Adjusted Operating Income: Revised to a range of $500 million–$570 million.
• Full-Year 2026 Adjusted EPS: Revised to a range of $1.15–$1.20.
• Full-Year 2026 Foreign Exchange: Expected to provide a ~1% benefit to net sales based on current spot rates.
• Full-Year 2026 Effective Tax Rate: Expected to be approximately 23%.
• 2027 Guidance: No specific numerical guidance provided; scheduled for release in February 2027 following the Q4 2026 earnings call.

Business-Segment Outlook:

• Hot Wheels: On track for its ninth consecutive record year, approaching $2 billion in annual gross billings; driving ~1 billion die-cast cars annually (32/second).
• Hot Wheels "Brick Shop": Identified as a successful new product line leveraging building sets (fastest-growing toy category); supply chain capacity is being optimized globally to support growth.
• Barbie: Performance deemed below expectations; focus shifted to strengthening core product offering, increasing consistency in content/cultural moments, and expanding appeal to adult fans and collectors.
• Challenger Categories: Action figures and games (excluding Mattel 163) showed growth; non-163 growth driven partly by timing shifts to Q4.
• Infant/Toddler & Preschool: Expects continued pressure driven by Fisher-Price performance.
• Regional Outlook: North America (+4%), EMEA (+3%), and Asia-Pacific (+15%) growth in Q3; Latin America (-3%) in Q3; trends expected to remain decelerated across major markets in Q4 2026.
• Partner Brands: K-pop Demon Hunters (Netflix) cited as a success example of translating cultural phenomena into product demand; strategy to treat partner brands as core assets.

Market and Competitive Outlook:

• Point-of-Sale (POS) Trends: Expectation of deceleration in consumer demand trends that began late Q3 2026 and is projected to continue through Q4 2026 across all major markets.
• Retailer Behavior: Continuing trend of retailers buying closer to demand; retailer inventory levels observed to be lower than prior year.
• Competitive Landscape: Management declined to attribute POS deceleration specifically to Mattel vs. industry-wide trends, stating the slowdown is "across the board."
• Supply Chain: Company confirms readiness to handle net sales within the revised range with no anticipated supply constraints; owned inventory is comparable to prior year.

Macro / Industry Outlook:

• Tariffs: Full-year guidance excludes YTD tariff refund benefits; future refunds are uncertain and excluded from the outlook.
• Economic Environment: Deceleration in consumer spending noted as a headwind, though specific macro drivers beyond general demand softness were not detailed.
• Foreign Exchange: Current spot rates utilized for the 1% benefit assumption in the guidance.

Strategic Initiatives:

• Leadership Changes: Roger Lynch appointed Chairman & CEO; Peter Griffith appointed CFO; Steve Totski appointed President & COO; Lee Matheson joined Board.
• Capital Allocation: Shift to a return-driven process prioritizing projects with after-tax cash-on-cash returns above the company hurdle rate; capital directed to highest ROI organic growth opportunities and capacity optimization.
• Technology & AI: Explicit commitment to leveraging technology, data, and AI to drive productivity and reduce cost structures.
• Digital & Ecosystem: Strategy reaffirmed as "toy-centric"; digital, gaming, and content investments are viewed as secondary to strengthening the core toy business first.
• M&A/Capex: Maintaining capacity for M&A/external development if strategic/financial criteria are met; opportunistic share repurchases continue ($1.2B authorization remaining).
• Timeline: Enterprise-wide strategic plans to be presented in February 2027 alongside 2027 guidance.

Risks and Headwinds to Outlook:

• Consumer Demand: Softening POS and decelerating trends in Q3/Q4 2026 as primary driver for revised guidance.
• Execution Risk: Need for improved consistency in execution, particularly regarding Barbie and broader portfolio performance.
• Tariff Uncertainty: Exclusion of future tariff refunds introduces variance potential if refunds are not realized.
• Timing of Orders: Risk of retailer order timing shifts impacting quarterly recognition (e.g., Pokémon license loss impact shifted to Q4).

Management Tone on the Future:

• Confidence Level: High confidence in long-term brand value and opportunity; tempered confidence regarding short-term execution and current Q4 performance.
• Strategic Pivot: Emphasis on "focus and execution" to restore consistency; prioritizing the core toy business over broader IP expansion until core performance improves.
• Guidance Stance: Definitive revision downward for 2026 to reflect current reality ("what we know today"); cautious tone regarding immediate future trends while maintaining readiness for demand recovery in late Q4.
• Change vs. Prior: Significant departure from previous optimism regarding Barbie and overall growth trajectory; acknowledgment that previous guidance reflected outdated information regarding POS.

Miscellaneous:

• Dividend/Buyback: No dividend change announced; share repurchase authorization of $1.2B remains active.
• Debt/EBITDA: Adjusted EBITDA and Free Cash Flow for Q3 provided as context but no forward targets set beyond the 2026 range.
• Q&A Specifics: No 2027 guidance provided; company will adhere to historical timing of Q4 2026 earnings call for next year outlook.