High retail inventories hurt the toy maker's first-quarter results.
Mattel posted a steeper-than-anticipated drop in first-quarter sales, as U.S. and some European retailers were left holding onto too much inventory after a muted holiday shopping season.
“As you can imagine, we view our first quarter results as disappointing and not reflective of what Mattel can deliver,” Mattel CEO Margo Georgiadis told Fortune in an interview. Georgiadis, CEO since February after steering search giant Google’s commercial operations in the U.S., said Mattel mat had addressed most of the inventory issues though the work to lessen the bloated inventory from the holiday season took longer than Mattel had anticipated.
Overall, Mattel posted a steeper-than-expected 15% drop in net sales to total $735.6 million while the per-share loss was 32 cents on an adjusted basis. Wall Street observers had projected $790.5 million in revenue on a per-share loss of 18 cents.
Mattel’s stock slipped 6.5% in after-hours trading following the results.
Sales declines were broad across many of Mattel’s core brands. Worldwide sales slipped 13% for Barbie and declined 12% for American Girl. Fisher-Price sales dropped 9%, while sales dipped 38% for the company’s construction and arts & crafts brands. The “wheels” category—which includes the popular Hot Wheels brand—was the lone bright spot, up 4%. Gross sales for “other girls” brands were down 34%, but that business was badly hurt by the loss of a key Disney dis Princess doll license that was awarded to Mattel’s primary rival Hasbro has .
While conceding the first quarter was a tough start to the year, Georgiadis struck a bullish tone about how the rest of 2017 would play out. The first quarter is the lightest sales quarter for toy makers like Mattel, which generates a bulk of sales in the back half of the year especially as the industry gears up for the key holiday season. Starting in the second quarter, Mattel should get help from the toys it has made to coincide with the release of Disney’s Cars 3, which hits theaters in the second quarter. That property alone could give Mattel a $300 million boost.
Georgiadis told Fortune that while the first-quarter revenue trends were disappointing, in-store trends were strong for the company’s most popular brands. “We are confident in both the product line and the enhancements we’ve made with Barbie, Fisher-Price and Hot Wheels,” she said. Georgiadis added that more work needed to be done for American Girl and said that while Thomas the Tank Engine was performing well internationally, the brand hasn’t been as compelling in the U.S.
“There is a lot of competition in preschool and we have to really challenge ourselves in how to differentiate [Thomas] in a crowded market,” Georgiadis said.
When asked about how Georgiadis would utilize her background at Google to tackle toy development and branding development at Mattel, she responded by saying she wants the toy maker to lean on technology across all areas of the business—including inventory management, innovation, marketing, and selling toys to shoppers that spend more time buying online and increasing less visiting physical stores.
Technology also plays a role in how users interact with Mattel’s brands. Hot Wheels, for example, inspires a lot of user-generated content on social channels like YouTube, which is owned by Georgiadis’ former employer. Mattel wants to find ways to interact with those consumers more and ultimately be more actively involved with them before, during, and after a purchase is made.
“Consumers have a different path to purchase. They don’t shop less than they used to, it is just that the footsteps went online,” Georgiadis said. “You have to think differently in how you engage with users.”