Mattel plans to expand its portfolio by reviving dormant brands and positioning itself as a “partner of choice” for entertainment properties, CEO Ynon Kreiz told analysts as the company released Q3 earnings.

Kreiz, who replaced Margo Georgiadis as CEO in May, didn’t provide details, but conceded Mattel fell short in competing for licenses in recent years. Indeed Mattel suffered a major blow in 2014 when it was replaced by rival Hasbro as the licensee for Disney Princess.

“We are going to compete” for licensed properties in a “much more front-footed way and we are looking to collaborate” with entertainment companies, Kreiz said. Kriez pointed to Mattel’ss master toy agreement for Universal’s Jurassic World: Fallen Kingdom, which has registered strong sales since the film’s release in June, as evidence of the new strategy.

Mattel also will mine its library of “hundreds” of dormant properties in seeking to breathe new life into some of them, Kreiz said. Mattel also will focus on developing new brands, he said. As part of that effort, Mattel formed a new Global Franchise Management Group in August that is being headed by Janet Hsu and reports to COO Richard Dickson.

The move to improve brand management is coupled with the recent formation of Mattel Films, which is designed to bring the toymaker’s properties to the silver screen. Mattel’s approach to the film business will be “capital-light”  in which it partners with studios and production companies and receives a combination of rights payments and royalties. “We intend to have meaningful partnerships in the event of success,” Kreiz said.

Mattel posted a $6.3 million profit in Q3 ended Sept. 30, reversing a year-earlier $603 million loss partly tied to bad debt reserves taken following Toys R Us’ bankruptcy filing last fall. The profit came despite Mattel taking a $13 bad debt reserve for Toys R Us and incurring $25 million severance/restructuring costs tied to the trimming of 2,500 jobs.

Net sales fell eight percent to $1.43 billion as revenue from partner (licensed) brands declined 17 percent to $232.3 million, due largely to lower Cars-related revenue, which was down 22 percent, while revenue from DC Entertainment properties slipped six percent. The downturn in DC Entertainment-related girls’ products was partly offset by gains in toys tied to Jurassic World: Fallen Kingdom. Star Wars-related sales also declined.

Toys R Us’ demise also contributed three percent to the Q3 sales decline, a decrease that is expected to hit a “double-digit” percentage in Q4 ending Dec. 31, CFO Joseph Euteneuer said. Sales in China also fell three percent amid an inventory “miscalculation” that will take the balance of the year to clear out, Euteneuer said.

Sales of Mattel’s “power” brands – Barbie, Hot Wheels, Fisher-Price, Thomas & Friends and American Girls — decreased five percent to $1.08 billion. A 14 percent rise in Barbie revenue to $374.7 million was offset by a 12% decline in Fisher-Price and Thomas & Friends to $$409 million.

Despite the declines in sales, Kreiz remained optimistic about the toy industry’s future, noting that Euromonitor is forecasting 4.7% annual sales growth through 2022 based on a survey of 32 countries accounting for about 80 percent of toy sales.

“Toys R Us is a very special situation and not a reflection of the industry,” Kreiz said. The “disruption” caused by Toys R Us this year will “subside” in 2019, Kreiz said.

“We see all the other retailers moving in and picking up the demand for toys and catering for consumers, who are looking to buy products,” Kreiz said. “The fact that one retailer is out of business doesn’t mean that consumers will change what they do, what they consume, and the toys they like.”

Contact:

Mattel, Joseph Euteneuer, CFO, 310-252-2000, joseph.euteneuer@mattel.com