Mattel’s initial sales of Cars 3-related products are at the low-end of its sales projections, requiring the toymaker and Disney to ready broader promotions in connection with the film’s DVD and streaming release, Mattel executives told analysts as the company reported its earnings for its second quarter ended.

Cars-3 product revenue, which Mattel previously forecast at $300 million, isn’t likely to exceed that target, CFO Kevin Farr said. The Disney film was released in the U.S. on June 16.

While shipments of the Cars 3 products met Mattel’s projections, initial sales through retail were at “the lower end of our plan,” Mattel CEO Margo Georgiadis said. Nevertheless, Mattel’s Q2 entertainment gross revenue, which includes Cars 3, rose 58% to $253.9 million, the company said,

“We are tracking [Cars 3] closely and we are going to build what we think we can sell,” said Farr, noting that the property has been buoyed by international sales. “If it’s slower, we will build lower, but we don’t expect it to be substantially lower than $300 million.”

The sluggish start for Cars 3 products came during a Q2 ended June 30 in which Mattel’s total revenue rose 2% to $974.5 million on the strength a 10% gain in boys and girls brands to $609.9 million. Within that category, Mattel posted strong sales of Hot Wheels, a product line in which licensed entertainment properties for the die cast cars “represent a major growth opportunity,” including those attached to the upcoming Star Wars: The Last Jedi movie, said Mattel’s Richard Dickson.

Mattel struggled with the Thomas the Tank Engine and Mega Brands products in Q2. The company’s construction and arts and crafts business, which includes Mega, posted a 27% decline in gross sales to $53 million, but is expected to benefit from the release of licensed Pokemon items in the fall.

As part of a new strategy being implemented, Mattel is “working on optimizing” its portfolio of entertainment licenses, including those with Disney, Nickelodeon and Universal Brand Development, Georgiadis said. In addition, the company is putting a “renewed emphasis” on licensing for Thomas the Tank Engine as a means for jump-starting the business, Georgiadis said.

Overall, Mattel’s Q2 net loss widened to $56.1 million from $19.1 million a year earlier as it took a $5.4 million restructuring charge. Gross sales in North America fell 2% to $574.8 million, while those in international markets jumped 8% to $493.7 million. Mattel’s gross margin declined in Q2 to 41% from 45.3% a year ago, partly due to an increased royalty payments tied to gains in the sales licensed properties, Farr said.

Contact: Mattel, Kevin Farr, Chief Financial Officer, 310-252-2000,  kevin.farr@mattel.com