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Mattel CEO on earnings, toys and NFT’s

Mattel shares jump after the toy company’s Q1 sales surge 47%. Ynon Kreiz, Mattel CEO, joins Yahoo Finance Live to break down the latest financial quarter, discuss the state of the toy industry and more.

Video Transcript

BRIAN SOZZI: Mattel wasn't playing any games with its first quarter earnings release after Thursday's close of trading. The company hammered Wall Street sales and profit forecasts. People used their stimulus checks to buy Barbie dolls, Hot Wheels cars, and Fisher-Price toddler toys. Mattel also lifted its full-year outlook as it continues to benefit from cost-cutting measures throughout the organization.

Joining us now is Mattel Chairman and CEO Ynon Kreiz. Ynon, always good to see you here. You talked at length, you really emphasized on the earnings call last night that you are not just riding the wave, I suppose, from people spending their stimulus checks, the economy improving. Why do you think some of these sales gains that you did see in the first quarter are sustainable into the back half of this year?

YNON KREIZ: Well, Brian, let me first give you a bit of an overview. This-- this was a record quarter for the company. Our results came well ahead of expectations with outstanding growth and very strong increase in profitability and free cash flow. Our net sales were up 47%, the highest quarterly growth rate on record going back more than 25 years.

And for the third quarter in a row, we had double-digit sales increase, grew ahead of the industry, and gained market share globally. This quarter was particularly strong in that our growth was very broad based. We achieved double-digit growth in each of our four regions, double-digit growth across all product categories, and strong double-digit increase in our power brands Barbie, Hot Wheels, and Fisher-Price, as well as American Girl.

So what you are seeing is the success of our multi-year transformation strategy, which we believe puts us in an excellent position to continue to improve profitability and accelerate growth. And you know, all in all, we are in the strongest position now than we have been in many years. This is not about the stimulus checks. This is about a comprehensive performance across the board by category, by region, and a lot of momentum within our business.

BRIAN SOZZI: And rightfully so, Ynon, there's always focus, lots of focus on Barbie. And Barbie sales were up 86% in constant currency in the first quarter. But you also saw strength in American Girl dolls as well. What is it about the doll category right now, why is it so hot?

YNON KREIZ: Yeah, as you said, Barbie just had a tremendous performance, 86%. Barbie strengthened its position as the number one global dolls property and continued to gain market share in each of our four regions. The dolls category, as a whole, grew 68%, phenomenal performance. It was driven by Barbie and American Girl, but also the launch of Spirit and Polly Pocket.

So we have a comprehensive portfolio that is performing very well. American Girl up 22% second quarter year-over-year growth, despite COVID-related retail disruptions. We are very encouraged by the results. We expect American Girl to continue to perform well in '21 relative to-- to last year.

Our online business for American Girl was up 73%, 73% growth in our online D2C. This is driven by new customer activations, new product offering, and very-- very successful execution of our plan. You know, American Girl is one of the most cherished brands in our portfolio. It's one of the most cherished brands in the industry. And it has a lot of momentum. It's great to see American Girl back.

BRIAN SOZZI: Are children just playing with toys differently or just using their time differently? I look-- so strength in Barbie, strength in American Girls, but you also had strength in a card game I grew up playing, UNO, in the most recent quarter, strength in Hot Wheels as well. How has the pandemic changed how children interact with toys?

YNON KREIZ: You know, the pandemic highlighted, yet again, the importance of-- of physical play, the importance of toy as a category. It is a strategic category for retailers. Parents will always prioritize spending more resources on-- on product for the children, especially high-quality product with known trusted brands. And this is really where we specialize. Our product is based on the Mattel playbook, how we approach our manufacturing, how we approach our design and development, how we approach everything we do.

The Mattel playbook is about brand purpose. It's about cultural relevance, design-led innovation, and executional excellence. And the way we communicate with consumers, how we engage with our fans really makes a difference. And that's why you see such comprehensive performance across the board, as you said, in vehicles, also infant toddler preschool, action figures, building sets, games, plush, we saw a consistent performance across all of our seven categories.

BRIAN SOZZI: You mentioned on the call last night, Ynon, that-- that so far in the second quarter sales are off to a strong start. How strong is strong?

YNON KREIZ: Well, we didn't put a number on it, but we did say that we are seeing a strong start for the second quarter, including Easter week. And we are planning for another good holiday season. We believe we are well-positioned to gain momentum for the full year and continue to grow our market share. And given the performance and momentum we are seeing in our business, yesterday we raised our guidance for the full year.

We- we're now looking to grow at between 6% to 8% in constant currency. This is going to be driven by dolls, vehicles, and action figures, with improving performance in the action-- sorry-- the infant toddler preschool category and building sets. And we're also looking to grow our EBITDA by a range of between 11% to 15%, so strong growth and continuous improvement in profitability.

BRIAN SOZZI: Is anything in that outlook embedded in the NFT space, meaning are you going to launch NFT initiatives this year?

YNON KREIZ: NFT is-- is an area that we're looking closely at. We own one of the strongest catalogs of children and family entertainment franchises in the world. And as the owner of those IP, owner of the rights, we have the opportunity to commercialize our rights in any-- any area. And NFT is definitely one-- one of the opportunities we're looking closely at. When you look at our portfolio, the heritage-- heritage brands, the built-in fan base, the avid consumers that we have all over the world, clearly we are in a very good position to extend our brands into new areas and new opportunities, and NFT is one of them.

BRIAN SOZZI: You called out, as well, a 35% growth rate in inflation in resins and ocean freight. Have you had to take price increases on-- on dolls and other toys?

YNON KREIZ: Yeah, we did see growth in inflation, as you mentioned, in ocean freight and-- and resin. The-- with that, even with this expected inflation, we have raised our guidance. So clearly, we're able to absorb part of that.

In terms of how we are approaching pricing, it is our expectation that over time that the combination of pricing and optimizing for growth, this is our new savings program, $250 million savings by 2023, will be able to more than offset and exceed the impact of cost inflation and the expanding-- and continue to expand our gross margin. We guided to an operating income margin of mid-teens by 2023, and we believe we are well on our way to achieve that.

BRIAN SOZZI: All right, we'll leave it there. Mattel Chairman and CEO Ynon Kreiz, always good to see you. Maybe at some point we'll actually get to do an interview in person, maybe play a game of UNO after.

YNON KREIZ: That would be great. Thank you, Brian.

BRIAN SOZZI: All right, we'll talk to you soon.

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