On this episode of Yahoo Finance Presents, Mattel CEO Ynon Kreiz sat down with Yahoo Finance's Brian Sozzi to discuss how the company is performing during the coronavirus crisis, including how some classic brands are thriving, the different ways some properties are being expanded outside of the traditional retail dimension, and looking ahead to the future.
BRIAN SOZZI: I'm joined now by Mattel CEO Ynon Kreiz. Ynon, good to finally speak with you.
YNON KREIZ: Good to talk to you.
BRIAN SOZZI: Take us to through story of Mattel right now. I'm looking over your most recent quarter. This is not the Mattel of three years ago. This is very much a different company since you got in charge. How have you rebooted this storied company?
YNON KREIZ: Well, let me start and say that, yes, we did come off a very strong quarter for Mattel. We believe we are very well-positioned heading into the holiday season. The toy industry as a whole grew and continues to demonstrate its resilience in challenging economic times.
But you know, many of the actions we took before the pandemic to reshape our operations are continuing to show and drive momentum in our success both in sales and profitability. And in that regard, we are ahead of the game. Mattel's growth outpaced the industry.
According to NPD we, gain shared globally in the third quarter. And in fact, this was the highest quarterly growth for the company in the past 10 years. So our strategy is working. And we are very excited by consumer demand and the momentum we are seeing heading into the holiday season.
BRIAN SOZZI: What do you think's been the most important initiative under your watch?
YNON KREIZ: You know, our strategy was to restore profitability and regain our top line in the short to mid term. And we are on a path to capture the full value of our intellectual property in the mid to long term. We made significant progress in restoring profitability.
We just-- in the third quarter, we announced that our gross margin hit 51%. This is 1,000 basis points higher than what we had in 2017. And with that, it was the ninth consecutive quarter of improving gross margin year in year.
In addition, we also grew our EBITDA by 90% and our operating income by 131%. So clearly very strong numbers in a challenging economic period. And in many ways, it's been a journey. This is not a one off. We've had a few consecutive quarters of strong performance of beating expectations.
And clearly, the strategy is working. The strategy is working. We're seeing momentum. Our brands are resonating. Our product is showing a lot of innovation. And with the momentum we are seeing, the growing market share, growing catalog, growing the portfolio as a whole in achieving growth in every region in constant currency and broadly across our portfolio in the third quarter is very telling.
BRIAN SOZZI: Take us through that, 'cause what has amazed me is the demand for toys. And I see it when I go into my Target store, my Walmart store. There are a lot of out of stocks. And clearly, a lot of people are shopping the category right now during the pandemic. Why do you think that's the case?
YNON KREIZ: Well, the toy industry proved to be very resilient in challenging economic times. People spend ti-- spend money. Parents spend money, prioritize, spend on children in the trying to find quality product, trusted brands, and provide engagement and entertainment for children, especially these times. What people see and recognize is the importance of physical play in a world of Zoom and time spent in front of screens.
And this is really where we come into play because we focus on purposeful play. We make toys that have a reason to be, that have a purpose beyond just the play. And it's resonating.
Parents appreciate that. Families recognize that. And we're seeing the results in the numbers. The brands resonate, and we're able to capture the imagination of children all over the world.
BRIAN SOZZI: You know, how does the pandemic change your thinking on how to develop the next hot toy?
YNON KREIZ: You know, we stay very focused on innovation, and as I said before, on purposeful play. Our brands have a long history, deep heritage, and built-in fan base. And we want to maintain that and continue to leverage on that engagement.
And as long as we create great product and continue to innovate, good things will happen. The one thing I would say is that we did accelerate our strategy to drive more online retail and e-commerce. This is one behavior, one shopping behavior that changed or accelerated. We did expect that to happen, but what we're seeing is probably you know, two, three, even five years ahead of what we would have expected.
And in line with that, we are also advancing our game in the e-commerce space. And you know, we just announced that our e-commerce business grew significantly and continued to outpace other channels even as more stores reopen. Online retail and e-commerce hits-- or grew 50% in the third quarter. And at this point, represents about 30% of our global retail sales.
American Girl, our direct-to-consumer business more than doubled and represents more than 50% of sales. So we also changed the way we engage with consumers and find ways to meet demand even in challenging times.
BRIAN SOZZI: One product you're selling a lot of online is Barbie. Barbie sales up, what, 30% in the most recent quarter. Barbie's back. Why is Barbie back?
YNON KREIZ: Yes. Barbie did exceptionally well. Up 30% as you said, almost in every segment. What's even more astonishing is that retail sales were up 50%, 50%. This really speaks to the strength and ongoing momentum of this incredible franchise.
You know, it's all driven by great product, design-led innovation, very effective demand creation, and cultural relevance. And when we say cultural relevance, we talk about diversity, inclusivity, purposeful play. This resonates with parents all over the world.
Barbie was the number one toy property in 12 out of 13 weeks in the US. And in fact, it was the number one toy property overall globally in the third quarter, not just among dolls. Probably had its highest quality growth going back more than 20 years.
And you know, it's been a long journey about evolving body, ethnicity, storytelling, a lot of innovation around product. We very much reframed the conversation around Barbie to be purposeful, and seeing significant franchise power and opportunity for a more growth and expansion for this incredible franchise.
BRIAN SOZZI: How do you keep Barbie culturally relevant over the next year?
YNON KREIZ: This is what we do. This is our DNA-- finding that-- finding that connection, staying relevant, staying ahead of the game, staying ahead of the curve. We're not following trends. We try to set trends.
And this is what-- this is what we're doing. There's no playbook for that. It's a combination of art and science, a lot of data. But more than anything, it's based on great innovation and really, really good instinct of our people, of our team that find a way to connect with consumers and remain culturally relevant. And it's not just Barbie. It's across the entire enterprise.
BRIAN SOZZI: Talk to us a little bit about the holiday season. I talked to a lot of retail and executives. And their word is, it's good. It's going to be a good holiday season. But your sales-- your point-of-sales sales have been strong coming at the most recent quarter. How do you explain that? And what's your outlook?
YNON KREIZ: Yeah. We are very excited about the upcoming holiday season. We don't believe there was much pull forward into the third quarter from the fourth quarter. Based on our own internal shopper research, we see that the vast majority of parents plan to spend the same or more on the holiday toy purchases in the fourth quarter. And we said in our own business we are chasing extraordinary growth in consumer demand for our product.
We continue to work very closely with retail-- with our retail partners to fulfill this demand. And we guided to a mid single-digit growth in the fourth quarter and remain very positive and excited about the opportunity.
BRIAN SOZZI: Is it realistic-- is the reality that just because the toy industry has seen such a crushing demand before the holidays, it will be out of stocks? And you better get your toys early.
YNON KREIZ: We always recommend people to buy early. It does help that the holiday shopping season was extended to provide more time and allow people to shop at more leisure. But yes, our toys are in demand. And we're working-- working closely with our retail partners on the challenge of meeting this extraordinary growth, this extraordinary surge in consumer demand for our product heading into the holiday season.
BRIAN SOZZI: You know, the other piece of the story is also not only rebooting the products. But you have an extensive content background having come from maker studios. How are you leveraging that going forward?
YNON KREIZ: We own one of the strongest catalogs of children and family entertainment franchises in the world. In the past, our focus was to sell toys. We are a toy company, of course, so that's what we do.
What we see now is a very exciting opportunity to commercialize our incredible franchises outside of the toy aisles. And in that regard, we are making significant progress on our strategy to capture the full value of our intellectual property. Recently, we announced that the 10th film project of Mattel Films, following nine other projects that are already in development or in partnership with great filmmakers and some of the best creators of our time.
The latest announcement was around "Thomas & Friends." This is a film partnership with Marc Forster, the director of "James Bond-- Quantum of Solace" and other great, great movies before that. Mattel Television is also making significant progress. We currently producing or developing high-quality episodic content based on our global iconic franchises.
Recently, we greenlit 104 episodes and two specials for the "Thomas & Friends" series. These shows will premiere in the fall of 2021. So there's a lot of activity, great franchises, great projects, incredible partners.
You know, "Barbie" has Greta Gerwig and Noah Baumbach writing-- working on the script with Margot Robbie to star, Warner Brothers as our partner, and many more examples that can tell you a lot more about that. But we could not be more excited about the momentum we are seeing, and the potential we expect to have as part of our mid- to long-term strategy.
BRIAN SOZZI: Will you be on streaming services like Netflix?
YNON KREIZ: We also expect to be on Netflix. There are two important series-- based on "Masters of the Universe," this incredible mythology that we're launching next year on Netflix, as well as other projects such as "The Barbie Dream House Adventures." This is a movie, a made-for-Netflix movie that we released in September, that's out of the gate, was among the top 10 most popular movies on Netflix, as well as many other great products that would be on streaming platforms.
BRIAN SOZZI: You caught my attention with "Masters of the Universe." This is-- these are toys that I played with as a child. And I might end up playing with them again now that I'm nearing 40 years old just because of that nostalgia factor. Are there other toys in your vast library that you're looking to bring back?
YNON KREIZ: Well, I can tell you you're not going to be the only one who will play with "Masters of the Universe" toys. It is an incredible franchise. We are relaunching it. We believe it has the potential to be as big as the Marvel Universe.
Endless characters and sorcerers and weapons and vehicles, it's just incredible. And already, we just launched-- did an early launch of a collector line doing amazingly well. Battle Cat, which I'm sure you remember, is already doing extremely well.
We are starting to presale the Castle Grayskull now. And next year, we'll have-- there would be a full launch of kids product and continue to expand the collector line. And like that, we see opportunities around other parts of our portfolio, of our catalog, to reimagine-- reimagined classic iconic franchises.
"Thomas & Friends--" Thomas is 75 years old. Barbie just celebrated her 60th anniversary. Hot Wheels is celebrated its 50th anniversary a year before last. So it's a collection of brands that resonate, that go back in some cases, many decades, but they're still very much relevant in today's world for today's consumers. And we're seeing a lot of opportunities to revive some of the brands from our classic catalog.
BRIAN SOZZI: Well, you've just taken me back to much, much simpler times in my life. We'll leave it there. Mattel's CEO Ynon Kriez, good to see you.
YNON KREIZ: Thank you. Great to be here.