Mattel 2015 Annual Report Download - page 3

TO OUR SHAREHOLDERS:
2015 was a year of transformation
for Mattel, as we took a number
of aggressive steps to stabilize
our business and help position the
company for sustained growth and
improved profi tability.
Our transformation began with
rebuilding our culture to re-focus
on brand building, creativity and
innovation, while putting a premium
on speed-to-market and accountability. Against this backdrop,
we identifi ed six strategic priorities for 2015 to guide our actions,
decisions and investments throughout the year:
1) Exploiting the franchise strength of our core brands
2) Re-establishing toy leadership
3) Achieving distinctiveness and excellence in our
commercial organization
4) Strengthening our global supply chain
5) Continuously drive cost improvement
6) Rapidly expanding in emerging markets
I’m pleased to say we made solid progress on all fronts, and I
think it’s fair to say Mattel is a signifi cantly different – and stronger
– company than it was just a year ago. We successfully stabilized
the business in 2015, despite substantial global economic
headwinds and competitive pressures. Setting aside the impact of
foreign exchange rates, Mattel’s gross sales in constant currency
were up 1% for the year.1* Our gross profi t in constant currency
for the year improved, and in the fourth quarter, adjusted earnings
per share2 also improved.3
Underpinning our performance, we made great strides towards
rebuilding Mattel’s culture and organizational capabilities by
articulating a set of core values – innovation, speed, accountability
and trust – and by rallying every Mattel employee around a
common mission: to be the recognized leader in play, learning and
development worldwide. Importantly, over the past year we have
replaced or re-assigned more than half of the members of our
senior leadership team to ensure we have the best talent fi lling
our most critical roles. We created the Chief Operating Offi cer
position to ensure consistent alignment across our brand and
sales teams, and we took a number of steps to re-organize teams
and resources throughout the company to focus on strategic
imperatives like core brand development, licensed entertainment
partnerships and toy leadership. Additionally, we hired several
executives from outside Mattel with deep expertise in crucial
areas like brand management, content creation and distribution,
e-commerce, fi nance and human resources. We also completely
revamped our performance management systems to better
connect individual and team performance to our core values.
In addition to rebuilding our culture, we also made great progress
against each of our strategic priorities in 2015. Our core brands
showed improved momentum throughout the year, with particular
strength demonstrated by our Hot Wheels® and Thomas &
Friends® brands, and a very positive shift by some of our more
challenged brands, like Barbie® and Fisher-Price®. We also made
great strides towards focusing our marketing and messaging,
adjusting our pricing strategy and improving our content and
media distribution capabilities.
Equally important, we had some big wins in the toy leadership
category. In collaboration with Google, we successfully re-
launched our View-Master® line, bringing the magic of virtual
reality to the iconic toy. We reinvigorated relationships with
key licensors like Warner Bros. Consumer Products, whose DC
Superhero Girls™ franchise we will be supporting with a terrifi c
line of products beginning this year. Importantly, we also reset our
relationship with Disney, and Mattel was recently awarded license
renewals for its upcoming Cars® 3 and Toy Story® 4 fi lms. And we
continued our strong partnerships with DreamWorks Animation,
Microsoft, Nickelodeon, WWE Wrestling and Universal Pictures,
and developed new partnerships with 9Story Media Group,
Amazon Studios, DHX Media Ltd., Netfl ix and YouTube.
Improved retail execution was a major goal in 2015, and Mattel’s
commercial organization helped drive outstanding progress in key
areas like retail customer support, merchandising and pricing, all
while strengthening our relationships with key retailers like Wal-
Mart, Toys ‟R” Us, Target, Amazon, K-Mart and Argos.
While we took steps to be more competitive on pricing, we also
continued to apply thoughtful fi nancial discipline in 2015, driving
efforts to reduce our cost base across our global supply chain and
throughout the organization. Adjusted gross margin ended around
50%.4* Adjusted other selling and administrative expenses were
down approximately $70 million compared to 2014, and we ended
the year nearly $30 million ahead of our cost savings target.5*
We are on track to deliver at the high end of our two-year savings
target of $250 to $300 million.6 Importantly, we achieved all of this
while improving product quality and customer fulfi llment, and we
maintained a cash dividend to our shareholders.
Finally, our results in 2015 were quite strong in key emerging
markets, China and Russia in particular. Despite some
challenging economic and political dynamics, we saw outstanding
growth in both markets.7 Importantly, we now have solid teams in
place in both China and Russia, to help drive continued success
in 2016 and beyond.
In summary, we made a great deal of progress in 2015, and our
foundation for stability and growth is much stronger. However,
despite the real progress we made this past year, we will continue
to face challenges in 2016. The loss of the Disney Princess®
license, which was announced in 2014, continued softness in our
Monster High® brand and ongoing foreign exchange pressures
will all be factors. But I believe our strengths far outweigh our
challenges, and I am confi dent we have the right strategies in
place to execute and deliver. So while 2016 will likely be a year
in which we strengthen our business through continued strong
execution, I believe we are well on the path to renewed growth in
2017 and beyond.
I am deeply optimistic about Mattel and its prospects moving
forward. We operate in a vibrant industry that is growing on
a worldwide basis, and the strength of our iconic brands and
global commercial operations is virtually unrivaled in the industry.
We have a strong leadership team and a re-energized global
workforce, and we are excited about the future of our partnerships
with both retailers and licensors. We have a solid balance
sheet that enables us to invest in our business while rewarding
our shareholders, and we have a strategic roadmap that I am
confi dent will drive continued progress in 2016 and beyond.
As always, thank you for your support as we work to return Mattel
to growth and continued industry leadership.
Sincerely,
Christopher A. Sinclair
Chairman and CEO
Mattel, Inc.
__________________________________________________________________________
1 Mattel Financials
2 Including discrete tax items
3 Mattel Financials
4 Mattel Financials
5 Mattel Financials; Mattel Internal Analysis
6 Mattel Internal Analysis
7 Mattel Internal Analysis
*Gross sales and constant currency results, adjusted gross margin and adjusted other selling and
administrative expenses are non-GAAP fi nancial measures. Please refer to “Non-GAAP Financial
Measures” beginning on page 42 of this Annual Report for more information about these results,
including defi nitions of and qualifi cations for these measures, as well as reconciliations to the most
directly comparable fi nancial measures in accordance with GAAP.