Mattel - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 revenue was $1.736B (-6% YoY) and adjusted EPS $0.89; both missed S&P Global consensus ($1.84B revenue, $1.06 EPS)*. Management attributed the shortfall to US retailers shifting from direct import to domestic shipping, pushing orders into Q4 while maintaining demand; adjusted gross margin remained above 50%.
• Orders from US retailers “accelerated significantly” since the start of Q4; POS grew in every region, and the company reiterated full-year 2025 guidance (net sales +1–3% cc; adj GM ~50%; AOI $700–$750M; adj EPS $1.54–$1.66; FCF ~$500M).
• Segment mix: Vehicles up 6% in constant currency (Hot Wheels +6% and on track for its eighth consecutive record year); Action Figures/Building Sets/Games +9% cc; Dolls -12%; Infant, Toddler & Preschool -26% cc.
• Capital allocation and positioning: $202M repurchased in Q3 (YTD $412M) with $600M targeted for 2025; leverage ratio 2.5x; inventory built ahead of Q4 to support domestic shipping and tariffs.

What Went Well and What Went Wrong

What Went Well

• Vehicles momentum and adult engagement: Hot Wheels +6% in Q3; adults are the fastest-growing audience with “over 100 million adults identifying themselves as toy vehicle owners”.
• International resilience and share gains: Gross billings grew internationally (+5% cc), with EMEA +3% cc, Asia Pacific +11% cc; management cited share gains in Dolls, Vehicles, and Action Figures.
• Strategic progress: New brand-centric organizational structure, expansion into digital games (self-published titles expected in 2026), and content slate advancements (Shani, M. Night Shyamalan’s Magic 8 Ball series); collaboration with OpenAI to embed AI capabilities.

Management quotes:

• “We continue to operate with excellence and maintain a gross margin above 50%”.
• “Since the beginning of the fourth quarter, orders from retailers in the U.S. have accelerated significantly and POS… continues to grow”.
• “Our strategic collaboration with OpenAI is taking shape as we embed AI capabilities across the organization”.

What Went Wrong

• US shipment dynamics: North America net sales -12%; billings -11% as retailer ordering shifted from direct import to domestic shipping, delaying revenue recognition into Q4 despite POS growth.
• Margin compression: Reported gross margin fell 310 bps to 50.0% (adjusted 50.2%, -290 bps) due to unfavorable FX, inflation, tariff costs, and higher sales adjustments; cost savings only partially offset.
• Category pressures: Dolls -12% cc (Barbie, Polly Pocket declines) and Infant/Toddler/Preschool -26% cc (Fisher-Price, Preschool Entertainment, Baby Gear & Power Wheels).

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Mattel Incorporated third quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you. And I would now like to turn the conference over to Jenn Kettnich, Head of Investor Relations. You may begin.

Jenn Kettnich (Head of Investor Relations)

Thank you, Operator, and good afternoon, everyone. Joining me today are Ynon Kreiz, Mattel's Chairman and Chief Executive Officer, and Paul Ruh, Mattel's Chief Financial Officer. This afternoon, we reported Mattel's third quarter 2025 financial results. We will begin today's call with Ynon and Paul providing commentary on our results, after which we will provide some time for questions. Please note that during the question-and-answer session, we respectfully ask that you limit to one question and one follow-up so that we can get to as many analysts' questions as possible today. Today's discussion, earnings release, and slide presentation may reference certain non-GAAP financial measures and key performance indicators, which are defined in the slide presentation and earnings release appendices. Please note that gross billings figures referenced on this call will be stated in constant currency unless stated otherwise.

Our earnings release, slide presentation, and supplemental non-GAAP information can be accessed through the Investors section of our corporate website, corporate.mattel.com, and the information required by Regulation G regarding non-GAAP financial measures, as well as information regarding our key performance indicators, is included in those documents. The preliminary financial results included in the earnings release and slide presentation represent the most current information available to management. The company's actual results, when disclosed in its Form 10-Q, may differ as a result of the completion of the company's financial closing procedures, final adjustments, completion of the review by the company's independent registered public accounting firm, and other developments that may arise between now and the disclosure of the final results.

Before we begin, I'd like to remind you that certain statements made during the call may include forward-looking statements related to the future performance of our business, brands, categories, and product lines. Any statements we make about the future are, by their nature, uncertain. These statements are based on currently available information and assumptions, and they are subject to a number of significant risks and uncertainties that could cause our actual results to differ from those projected in the forward-looking statements. We describe some of these uncertainties in the risk factors section of our latest Form 10-K annual report, our latest Form 10-Q quarterly report, our most recent earnings release and slide presentation, and other filings we make with the SEC from time to time, as well as in other public statements.

Mattel does not update forward-looking statements and expressly disclaims any obligation to do so, except as required by law. Now, I'd like to turn the call over to Ynon.

Ynon Kreiz (Chairman and CEO)

Thanks, Jenn. Good afternoon, and thank you for joining Mattel's third quarter 2025 earnings call. This quarter, our U.S. business was again challenged by industry-wide shifts in retailer ordering patterns. That said, consumer demand for our products grew in every region, including in the U.S., and gross billings increased in our international business. We continue to operate with excellence and maintain a gross margin above 50%. We repurchased $202 million of shares, bringing the total this year to $412 million, and are on track to repurchase $600 million for the full year. Since the beginning of the fourth quarter, orders from retailers in the U.S. have accelerated significantly, and POS for Mattel continues to grow in the U.S. and internationally. These trends are tracking in line with our full-year outlook for 2025.

Looking into the balance of the year, we expect a good holiday season for Mattel, strong top-line growth in the fourth quarter, and are reiterating our full-year guidance. We have made important strides in advancing our strategy to grow our IP-driven toy business and expand our entertainment offering. Here are some of the key highlights. We implemented a new brand-centric organizational structure with integrated marketing to enhance and accelerate Mattel's global brand management capabilities. We launched two new standout product lines, which are off to a strong start: Mattel Brick Shop in the building sets category and the Hot Wheels Speed Snap Track System in vehicles. American Girl achieved its fourth consecutive quarter of growth, driven by strength in both direct-to-consumer, omnichannel retail, and wholesale channels. We made meaningful progress on our first two self-published digital games, which we expect to launch next year, with several more in development and pre-production.

Mattel Studios recently announced the development of two new live-action television series, entering an exciting new programming genre. Our strategic collaboration with OpenAI is taking shape as we embed AI capabilities across the organization, and as just announced today, Mattel has been awarded global licensing rights to develop and market a full range of KPop Demon Hunters products across major categories. This includes dolls, action figures, accessories, collectibles, playsets, collaborations with co-brands, and more. We are excited to partner with Netflix on the most popular film of all time and bring this vibrant, imaginative world to life. This, in addition to the recent renewal of our multi-year licensing agreement for the Disney Princess and Frozen franchises, further reinforces our leadership position as a partner of choice to major entertainment companies and IP owners.

Looking at key financial metrics in the third quarter as compared to the prior year, net sales, adjusted operating income, and adjusted earnings per share declined, primarily due to U.S. retailers moving from direct import to domestic shipping, shifting orders to the fourth quarter. As always, we are working closely with our retail partners to manage through this freight environment. Notwithstanding the shift in retailer ordering patterns, Mattel's POS increased overall, with growth in every region, including the U.S. As it relates to category gross billings, vehicles grew, as well as our challenger categories combined, while dolls, infants, and preschool declined. Per Circana, we gained market share in key categories, including dolls, vehicles, and action figures. The toy industry also grew high single digits in the third quarter, well above the low single-digit trends of recent years, reflecting momentum heading into the holiday season and beyond.

An important priority for the company is to scale digital games, where we are looking to extend physical play to the virtual world by creating games and experiences that drive sustained engagement for fans of all ages. We recently announced three licensed games for console and PC for Hot Wheels, Masters of the Universe, and Barbie, as well as a partnership with Netflix to bring Pictionary into living rooms around the world. We expanded our collaboration with Roblox with a new slate of games and experiences for Barbie, Hot Wheels, Masters of the Universe, and UNO, as well as Monster High, which launches this week. A Fortnite Monster High experience also launched last week. Mattel163, our joint venture with NetEase, recently released its fourth game, UNO Wonder, which is off to a promising start.

Our digital game self-publishing strategy is progressing well, with two games expected to launch in 2026 and additional games in development and pre-production. Mattel Studios continues to add more projects to an exciting slate. In film, the Polly Pocket live-action movie will be co-developed with Witherspoon's Hello Sunshine and Amazon MGM Studios. Two-time Golden Globe nominee Lily Collins will co-produce and star in the movie. In television, we are entering a new phase as we expand into cinematic quality episodic series designed to profitably reach new audiences. Recently, we announced our first two premium live-action scripted TV series in development. The first is a series based on Shani, Mattel's first standalone Black fashion doll line, in development with Amazon MGM Studios.

And the second is a series based on Mattel's iconic Magic 8 Ball franchise, directed by acclaimed filmmaker M. Night Shyamalan and written by Glee, an American Horror Story creator, Brad Falchuk. To conclude, while our U.S. business was challenged by ongoing shifts in retailer ordering patterns, our POS increased in every region, and gross billings grew in our international business. We continued to operate with excellence and made meaningful progress advancing our IP-driven toy business and expanding our entertainment offering. Notwithstanding the impact of the current trade dynamics, the fundamentals of our business are strong.

Consumers are buying our products, and the toy industry is growing. Our supply chain expertise and global commercial capabilities are competitive advantages, putting us in a strong position to work closely with retailers to place the right products at the right amount on the right shelves at the right time. As the environment normalizes, we expect to accelerate growth and continue to successfully execute our strategy. Now, I would like to turn the call over to Paul to discuss our results and outlook in more detail.

Paul Ruh (CFO)

Thanks, Ynon. As you heard, while our U.S. business was challenged by shifts in retailer ordering patterns, we saw continued growth in consumer demand for our products across every region, as well as gross billings growth internationally. Looking at key financial metrics for the quarter, net sales decreased 6% as reported and 7% in constant currency to $1.74 billion. Adjusted gross margin decreased by 290 basis points to 50.2%. Adjusted operating income decreased by $117 million to $387 million, and adjusted earnings per share decreased $0.25 to $0.89. Total company gross billings decreased 5% in constant currency. It is important to note again that POS increased in the quarter, with growth across all regions, including the U.S., indicating healthy consumer demand for our products.

Looking at gross billings by category, dolls declined 12%, primarily due to Barbie and Polly Pocket, partially offset by growth in Wicked, Monster High, and American Girl. We expect improving trends for Barbie in the fourth quarter and into next year, driven by cultural relevance, packaging innovation, and enhanced product segmentation, new form factors and play patterns, and expanding adult demand. Vehicles strong momentum continued, growing 6%. Growth was widespread across the portfolio, with Hot Wheels up 6% and on track for an eighth consecutive record year. We are successfully driving demand across all ages, with adults being the fastest-growing audience for Hot Wheels and over 100 million adults identifying themselves as toy vehicle owners. ITP declined 26% due to declines in Fisher-Price and preschool entertainment, as well as the planned exit of certain product lines in Baby Gear and Power Wheels.

We expect new product lines and expanded distribution for Fisher-Price to drive improving trends. Challenger categories collectively grew 9%, primarily driven by action figures, including Jurassic World, Minecraft, WWE, and Masters of the Universe. These gains were partially offset by declines in building sets. In games, UNO grew for the ninth consecutive quarter and maintained its position as the number one card game per Circana. Turning to gross billings performance by region, North America declined 10%, reflecting the significant shift in retailer ordering patterns that impacted our U.S. business. All other regions collectively increased 2%, with growth of 3% in EMEA and 11% in Asia-Pacific, partially offset by a 4% decline in Latin America. Moving down the P&L, adjusted gross margin was 50.2%, a decrease of 290 basis points.

The decrease was primarily due to the impact of unfavorable foreign exchange, inflation, tariff costs, and higher sales adjustments, partially offset by cost savings. Advertising expenses increased $13 million in Q3 versus the prior year, supporting higher consumer demand. Adjusted SG&A expenses decreased $5 million, driven by several factors, including lower compensation-related expenses. Adjusted operating income decreased by $117 million to $387 million, primarily due to lower net sales and lower adjusted gross margin. Adjusted EBITDA decreased to $466 million, and adjusted earnings per share decreased to $0.89. We repurchased $202 million of shares in the third quarter, bringing our year-to-date repurchases to $412 million, as we continue to target $600 million for the full year in accordance with our capital allocation priorities. Year-to-date cash used for operations was $203 million, compared to $62 million in the prior year.

On a trailing 12-month basis, we generated $488 million of free cash flow, compared to $688 million in the prior year period, with the decline primarily due to lower net income, net of non-cash adjustments. We ended the quarter with a cash balance of $692 million, a decrease of $32 million as compared to the prior year quarter after buying $202 million of shares in the third quarter this year. Total debt remained the same at $2.34 billion. Our inventory level was $827 million, an increase of $89 million as compared to the prior year. The increase reflects tariff-related costs, foreign exchange, and the buildup of inventories in response to retailers shifting from direct import to domestic shipping in the U.S., as we prepare for a strong fourth quarter.

Retail inventories are modestly lower as compared to the prior year and are of good quality, positioning us well for the holiday season. Our leverage ratio, debt to Adjusted EBITDA, was 2.5 times compared to 2.3 times a year ago. We are committed to maintaining a strong and flexible balance sheet with a disciplined approach to leverage and capital allocation in line with our capital allocation priorities. We continue to execute on the Optimizing for Profitable Growth program. In the third quarter, we achieved $23 million in savings. We are on track to reach our 2025 cost savings target of $80 million, with $65 million in savings for the year to date. Since launching the program in 2024, we have now realized $148 million of savings out of a total program savings target of $200 million by 2026.

As Ynon said, since the beginning of the fourth quarter, orders from retailers in the U.S. have accelerated significantly, and POS for Mattel continues to grow in the U.S. and internationally. Assuming these trends continue, we expect strong top-line growth in the fourth quarter and are reiterating our full year 2025 guidance of net sales growth of 1%-3% in constant currency, adjusted gross margin of approximately 50%, adjusted operating income of $700million-$750 million, an adjusted tax rate of 23%-24%, adjusted EPS in the range of $1.64-$1.66, and free cash flow of approximately $500 million. As mentioned, we continue to target $600 million in share repurchases for the full year. Mattel's guidance considers what the company is aware of today, but is subject to market volatility, unexpected disruptions, including further regulatory actions impacting global trade and other macroeconomic risks and uncertainties.

In summary, key financial metrics for the quarter were impacted by the ongoing shift in retailer ordering patterns. That said, we maintain an adjusted gross margin above 50%. There is growth in demand for our products, and we continue to operate with excellence. Our balance sheet is strong, and both our own and retail inventory levels position us well for the holiday season. As we enter the fourth quarter, we see improving trends in orders from retailers in the U.S. and POS growth, tracking at the appropriate levels and in line with our full year outlook for 2025. I will turn it back to the operator now for Q&A.

Operator (participant)

Thank you. And we will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, press star one a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is star one to join the queue. And our first question comes from the line of Megan Clapp with Morgan Stanley. Your line is open.

Megan Clapp (U.S. Food Producers and Leisure Analyst)

Hi. Good afternoon. Thanks so much. I wanted to start with the top line, maybe unsurprisingly, and kind of a two-part related question just because there is a lot going on here, as you talked about with these shifting ordering patterns. I just want to make sure we all kind of understand. So first, is it possible to quantify POS in the third quarter? I know you said positive, but could you put a finer point on it and maybe where you are year-to-date in the U.S.? And then related to that, if we look at where North America billings are year-to-date, I think down 10% year-to-date versus what sounds like at least positive POS growth. So when you think about that 10-plus points of retail destock that's happened, how much are you assuming gets recaptured in the fourth quarter?

And maybe you can just help us understand how much visibility you have at this point in the season. Thank you.

Paul Ruh (CFO)

Thank you for the question, Megan. Let me start by addressing the POS in the third quarter, so Mattel POS in the third quarter increased in all regions, including the U.S., and POS generally outperformed gross billings in Q3, which is actually a good leading indicator for upcoming orders. Now, to your question also, what does that mean for Q4? In the beginning of Q4, POS for Mattel has continued to grow both in the U.S. and internationally, and the orders from retailers in the U.S. have accelerated, so we monitor these on a monthly, weekly basis as well, and it's moving in the right direction to substantiate our supporting the guidance. Retailers are restocking to meet the expected consumer demand ahead of the holiday season, so all of these bodes well for a strong holiday season and also for a good ending of the year.

Now, you also asked us about gross billings in Q4. I just wanted to reiterate our guidance of 1%-3% in constant currency. And as I said before, with any timing shift, there's always a risk that sales will fall into the following year. But the outlook that we have is supported by the current trends both in POS and shipments.

Megan Clapp (U.S. Food Producers and Leisure Analyst)

Great. Okay. So it does sound like you're seeing that restock. So shipments are ahead of POS at this point, which is helpful. My second.

Paul Ruh (CFO)

That's exactly it.

Megan Clapp (U.S. Food Producers and Leisure Analyst)

Okay. Great. My follow-up on gross margin, I was curious if you could just talk about how the tariff-related price increases impacted gross margin this quarter. It doesn't look like from the slides there was much of a benefit in the bridge. Is that timing because of these shipment dynamics, or were there other offsets that kept it from coming through? And how should we think about the fourth quarter in terms of pricing out of inflation?

Paul Ruh (CFO)

Yes. In terms of gross margin, adjusted gross margin for the quarter was 50.2%. And the impacts in the quarter were foreign exchange inflation and tariffs, as you mentioned, and higher sales adjustments, and they were partially offset by cost savings. You're right. We don't necessarily see the full impact of the tariff costs yet, as they are flowing through our inventory, and they will be seen more towards the fourth quarter. The full year guidance that we just reiterated, which is about 50%, generally implies the continued impact for these factors into the fourth quarter.

Megan Clapp (U.S. Food Producers and Leisure Analyst)

Okay. Thanks, Paul. I'll pass it on.

Operator (participant)

Our next question comes from the line of Arpine Kocharyan with UBS. Your line is open.

Arpine Kocharyan (Managing Director)

Hi. Thanks for taking my question. I was wondering if you could give a bit more detail on what do you think is driving the retailer order acceleration here. Do you feel that the consumer at this point has sort of seen the full impact of tariffs and that is partly kind of giving some level of visibility into what that elasticity looks like for retailers and they're gaining more confidence here, or what do you think is driving that acceleration in orders? And then I have a quick follow-up.

Paul Ruh (CFO)

Yeah. Arpine, let me start by maybe taking a step back and take you through the dynamics that are playing out this year, which is all about the retailers shifting their ordering patterns from direct import to domestic shipping, as well as how our scale and capabilities position us well to navigate this year. Let me start with direct import. Direct import is when the retailers take ownership of the product at the sourcing country and handle the importation and warehousing themselves, and they take advantage of their own logistics network to improve their margin. Direct import orders occur normally a couple of months in advance, and they are in larger quantities per order. On the flip side, domestic shipping is when Mattel handles the importation of the goods and warehousing as well, and the retailers take the ownership in the destination country.

It's a more just-in-time and with more frequent order mechanism, and given our scale and supply chain capabilities, at the high level, the economics to us are similar for both direct import and domestic, which is actually different for other players in the industry who are more geared to direct import. Now, this year, given the macroeconomic environment and the trade dynamics, this was an anomaly, and retailers shifted more from purchasing from direct imports to domestic shipping because they wanted to give themselves time and more flexibility to commit to orders. Now, this shift, as you well say, is resulting in more domestic shipping towards the back end of the year and into the fourth quarter, but given the positive increase that we are seeing in POS, retailers are now accelerating domestic orders. They see what we are seeing.

They see an increase in POS, so they want to be ready for the season, and they're stocking up their inventories to meet the expected consumer demand. These trends are tracking in line, actually, with our full year outlook for 2025. Hope I took a little bit more time to walk through the dynamics that are happening, but I think it's important that it's clear why this is an anomaly in 2025.

Arpine Kocharyan (Managing Director)

Great. That's super helpful. So it sounds like you don't really have to see retail accelerate from current levels to meet that guidance of about 12.5 or close to, call it, low double-digit revenue that your midpoint of your guidance implies for Q4. It seems like even steady state will allow you to meet that guidance. Is that correct?

Paul Ruh (CFO)

Yeah. Q3 ended with strong POS growth in every region, including the U.S., and since the beginning of the fourth quarter, as I mentioned before, we track month by month, week by week, POS for Mattel and for our product lines is continuing to grow very strongly. The orders are following. The orders from retailers are following, and in the U.S., they have accelerated significantly, so not only was POS strong in Q3, and it's accelerating in Q4, and the orders are following now, that's what is underpinning our guidance for the fourth quarter, therefore for the full year.

Arpine Kocharyan (Managing Director)

Thank you very much. Thanks.

Paul Ruh (CFO)

Yeah.

Operator (participant)

And our next question comes from the line of Stephen Laszczyk with Goldman Sachs. Your line is open.

Stephen Laszczyk (Lead Equity Research Analyst)

Hey, great. Thanks for taking the questions. One on international and then one on the U.S. Maybe first on international for Paul or Ynon. International business has performed quite well so far this year. I think pacing up 3% through the third quarter. Curious, any headwinds or added tailwinds that you think we should be factoring in as we look into 4Q, or is the expectation that current trends persist as they are into the holiday season on the international side? And then on the U.S. front, curious on the market share side of the equation, if you're seeing any smaller or mid-sized toy companies maybe pull back on the U.S. market, to what extent you're seeing opportunity for Mattel to take market share into year-end or even as you look out into 2026? Thank you.

Ynon Kreiz (Chairman and CEO)

Yes. Hi, Steven. Regarding the international market, what we're seeing is in line with our expectations. Many of our brands are resonating with consumers. Commercial execution is strong, and we're seeing increased POS in all regions. In EMEA, we saw a fourth consecutive quarter of growth driven by strong consumer demand and very disciplined execution across markets and brands. In Asia-Pacific, we've seen growth across key markets, including Australia, New Zealand, and China. In Latin America, there's some industry softness in Mexico, but we continue to execute well, and as a whole, we look forward to continuing to grow our international business this year and over the long term. In the U.S., there's no particular trend to note.

We continue to gain share in Dolls, vehicles, and action figures. Very excited about the momentum we're seeing, of course, in vehicles, but also in action figures, particularly this year. Very strong performance. We're seeing Barbie, Hot Wheels, and Fisher-Price as number one in their respective categories, with UNO being the number one card game globally. So all in all, based on the strength of our brands and product roadmap, we are very well positioned in the fourth quarter. We expect to see strong growth overall for Mattel in the fourth quarter. And as Paul said, achieve our guidance.

Stephen Laszczyk (Lead Equity Research Analyst)

Great. Thank you.

Operator (participant)

Our next question comes from the line of Alex Perry with Bank of America. Your line is open.

Alex Perry (Director of Equity Research)

Hi. Thanks for taking my questions here. And wanted to start on content, and then I have a follow-up on tariffs. But just on content, how much content support should be seen in the fourth quarter, especially with the Wicked movie here? And then any initial thoughts on how you're thinking about next year, even if it's just from sort of a content lineup perspective? Thanks.

Ynon Kreiz (Chairman and CEO)

Yeah. Thanks, Alex. Yes. The Wicked movie is going to be an important addition to our lineup in the fourth quarter. First movie was strong, and of course, we expect continued strong performance for the second movie. So this is all great. Where we saw particular strength this year was in Jurassic and Minecraft, Jurassic World movie and Minecraft movie. And next year, we're very well positioned for a Toy Story movie, the Moana live-action movie, and of course, our own two movies, Masters of the Universe and Matchbox, which will be released next year. So on the film side, an exciting slate of projects, both Mattel IP and third-party partnerships. And let's not forget the KPop Demon Hunters, a big win for Mattel. This is an important partnership.

We were awarded key, very valuable categories, including dolls, action figures, collectibles, playsets, very valuable categories, and this will be another important addition next year. We're actually starting the pre-sale this November, but the lion's share of the business will happen next year.

Alex Perry (Director of Equity Research)

That's incredibly helpful and exciting. I guess my follow-up is I wanted to ask about tariffs and ask about the sort of full annualized tariff impact. Is there any color that you can give in sort of the tariff impact for the fourth quarter and as you start to think about fiscal 2026? Thanks.

Ynon Kreiz (Chairman and CEO)

Yeah. Let me just reflect a bit on what we've seen this year. So initially, there were two levels of exposure when it came to tariffs. This was about cost impact and consumer reaction to price increases. We fully addressed the cost impact. It's already better than the numbers and fully addressed, and then we're not seeing any slowdown in consumer demand so far. So the two issues that were on the table are taken care of. We're not seeing any slowdown in consumer demand, but that's important to say. What we are seeing is what Paul talked about earlier, is that given the macroeconomic environment and trade dynamics, the retailers shifted more purchasing from direct import to domestic shipping.

But as we also explained, given the positive consumer demand for Mattel, coupled with the fact that the toy industry is growing strongly, we are seeing a significant increase in retail orders. And the reason they do it is because they're seeing the same thing. They expect strong demand for the holiday, and they're restocking. So in that sense, we expect to see strong growth in the fourth quarter, continued demand from consumers, and this will all play out in the numbers as we explained.

Alex Perry (Director of Equity Research)

Perfect. That's very helpful. Best of luck going forward.

Paul Ruh (CFO)

Thank you. And maybe, Alex, just want to add one quick point on the annualized value of the tariff impact. I would not extrapolate what we saw in 2025 times two. Remember, we cited a number short of $100 million. But given the historical annual sales rate of approximately one-third in the first quarter and sorry, in the first half and two-thirds in the second half, it should be less than two times the $100 million that we cited for 2025. So just for your planning purposes and calculation purposes, I would go with those assumptions. And the $100 million is, of course, before mitigating actions.

Alex Perry (Director of Equity Research)

Perfect. Very helpful. Best of luck going forward.

Paul Ruh (CFO)

Thank you.

Ynon Kreiz (Chairman and CEO)

Thank you.

Operator (participant)

Our next question comes from the line of Kylie Cohu with Jefferies. Your line is open.

Kylie Cohu (Consumer Equity Research)

Hey. Thank you for taking my question. I wanted to double-click on Barbie. I'm just kind of curious what you guys were expecting for Q4? Obviously, we've had several quarters of negative there. Do we expect that to go positive? And any other color you can just add on the brand in Q4 and beyond would be helpful. Thanks.

Ynon Kreiz (Chairman and CEO)

Sure, Kylie. Barbie, as a brand, is very strong, and it has been the number one doll property in the industry for the last five years. And as you know, Barbie stands among the most recognized and beloved franchises in the world. This is well outside of toys. We expect to see improving trends in the fourth quarter and into next year, driven by cultural relevance, packaging innovation, and enhanced product segmentation, new form factors and play patterns, and expanding product for adults, which is a very fast-growing segment for us. We also see continued momentum in brand partnerships. Of course, we have the animated movie in development with Illumination, which we're very excited about. And we also expect that the new organizational structure that we recently announced will ensure and improve and strengthen our collaboration, coordination, and alignment in terms of execution across all aspects of the brand.

So all in all, very confident in Barbie's long-term growth trajectory, and we look forward to sharing more next year, especially at the New York Toy Fair, with more product introduction and a lot of things to celebrate.

Kylie Cohu (Consumer Equity Research)

No, thank you. That's super helpful color. Just also wanted to mention, you mentioned it already a little bit, but on the KPop Demon Hunters' license, obviously very exciting. Can you remind us, you said a little bit before, but when some of those products we can expect them to hit shelves and any other details you can share?

Ynon Kreiz (Chairman and CEO)

Yeah. So as we said, we've been awarded multi-year licensing rights to develop and market the full range of the KPop Demon Hunters franchise across dolls, action figures, collectibles, playsets, accessories, as well as collaboration with co-brands, which is an extension of some of these rights. Very excited to partner with Netflix on the most popular film of all time and bring this very exciting, vibrant world to life in 2026. The collector pre-sales will begin in November on Mattel Creations, with additional product to be available at retail in the beginning of spring 2026, and of course, heading towards the holiday season next year. This licensing agreement builds upon the strong relationship that we have with Netflix that spanned various brands such as Stranger Things, Squid Game, and Bridgerton.

And I should also mention and remind you that we just announced yesterday that we are extending the multi-year relationship with Disney for Disney Princess and Frozen. And together, these two announcements reinforce our leadership position as a partner of choice to the major entertainment companies and IP owners. So it's another important building block as we continue to position Mattel in that regard. We see these brands as our own. We treat them as our own, and we manage them as a portfolio with the best team in the world when it comes to franchise management.

Kylie Cohu (Consumer Equity Research)

Great. Thank you so much, and good luck this holiday.

Ynon Kreiz (Chairman and CEO)

Thank you.

Operator (participant)

And our next question comes from the line of Chris Horvers with JPMorgan. Your line is open.

Christian Carlino (Equity Research Associate)

Hi, good evening. It's Christian Carlino, on for Chris. Following up on the prior question, you laid out a few points on the horizon for Barbie, but to put a finer point on it, when specifically do you see that brand returning to more sustainable growth given it's been trending below where it was in 2023, excluding the movie?

Ynon Kreiz (Chairman and CEO)

Yeah, well, as we said, we expect to see improving trends in the fourth quarter and into next year. We can be more specific about what we are planning for next year, but I can share with you that we continue to focus on key trends, especially around fashion, continue to tap into cultural trends that define Barbie and separate it from the rest of the industry. Just recently, we teamed up with the Rugby Doll team to celebrate the International Day of the Girl. We, as you know, launched the Barbie doll with Type 1 diabetes, and just recently, the You Create line was recognized as one of Time magazine's 100 best inventions of 2025, so we continue to put out very exciting products and innovate across the portfolio. We also continue to focus on packaging. This is an important feature in terms of the audience segmentation.

We are serving the growing adult collector fan. More demand there. We have very exciting partnerships for Barbie and for Ken. We are creating new form factors and play systems beyond the traditional doll offering and continue to introduce new content activations and games to deepen engagement and have multiple touchpoints with fans of all ages.

Christian Carlino (Equity Research Associate)

Got it. That's helpful. And on pricing, you've taken all the pricing you plan to take this year. That's phasing into the P&L based on the timing of delivery. So how are you thinking about taking incremental price next year to maybe recoup some of the gross margin rate headwinds and tariffs? Do you currently have plans to take more price, maybe on newer products next year? But it really comes down to how the consumer reacts to this holiday. So just curious how you're thinking about that.

Paul Ruh (CFO)

Yeah. The goal overall is to keep prices as low as possible for our consumers. So that's first and foremost something that we consistently pursue. And we did implement pricing actions in the U.S. in the end of Q2, beginning of Q3. And all of this was done in collaboration with our retail partners. It was one of the several elements that we used to mitigate the cost impact of the tariffs. And let me make it clear, we are not intending to take additional prices this year. The important thing is that we offer a variety of toys along a very wide range of price points and to meet our consumer needs. Now, we're looking at the impact of tariffs and other inflationary items into 2026, but we have not made a decision on pricing.

We will let you know as soon as we talk about the guidance next quarter, but we will always use an array of levers that include efficiencies to be able to mitigate the impacts.

Christian Carlino (Equity Research Associate)

Got it. Thank you very much. Best of luck.

Paul Ruh (CFO)

Thanks. Thanks, Chris.

Operator (participant)

Our next question comes from the line of Eric Handler with Roth Capital. Your line is open.

Eric Handler (Managing Director and Senior Research Analyst)

Good afternoon. Thank you for the question. First, let's start off. I don't really know what normalized years are anymore for this business. But if you think about retail inventory volumes that are expected this year, are they any different from what we saw three, four years ago?

Paul Ruh (CFO)

To answer it very simply, it's not. We believe that the combination of both owned and retailer inventories are at a very appropriate level as we prepare for a very strong Q4. Just to give you more specifics and numbers, our inventory level at the end of Q3 was $827 million. And that's an increase of $89 million. So we're talking about something in the range of 10% as compared to prior years. The retail inventories, on the flip side, are modestly lower. So the addition of retail inventories plus our own inventories are at the appropriate levels. And they're of good quality and positioned as well for the holiday season.

The other thing that it's worth noting is that our supply chain expertise and also our commercial capabilities are advantages that we believe put us in a strong position because we work closely with our retail partners with the right products, right amount at the right time on the shelves. Net-net inventory management is something that we constantly look at in partnership with our retailers. The behavior that we're seeing this year is not abnormal. The levels are very appropriate for a strong ending of the year.

Eric Handler (Managing Director and Senior Research Analyst)

Okay. Thank you, and then with regards to new organizational structure, can you maybe give us some high-level details on sort of what is changing on a day-to-day operation and is there any financial impact from this?

Ynon Kreiz (Chairman and CEO)

Yes, Eric. We are at an important inflection point in our journey and strategy, and the recent announcement reflects an evolution in how we grow and manage our business overall with a new brand-centric organizational structure and operating model. The goal is to manage our brands holistically and create closer alignment between our toy and entertainment businesses. This new organizational structure will accelerate our brand management strategy and franchise flywheel and put us in an even better position to drive profitable growth across the enterprise and continue to operate with excellence. As part of it, we also integrated marketing across global brands and franchise teams to further align brand management in all consumer touchpoints, and this is a very important point. Roberto Stanichi, who is the new head of our brand team, the global brand team, has been managing the vehicles category and Hot Wheels.

And as you know, this has been a star-performing category for us, which consistently applied our playbook and methodology in the most articulated way, driving growth in vehicles overall, and also demonstrating the textbook implementation of our brand strategy across product, franchise management, adult collector, and content with continuous innovation. Now, play is a core competence for Mattel, and the strength of our brand differentiates us in a world where every company is looking for strong IP to stand out in the marketplace. And we believe that success in our toy business will drive success in entertainment, and success in entertainment, including content, consumer products, experiences, and digital games, will drive more success in toys. And the opportunity now is to fully capitalize on this virtuous cycle.

So when all is said and done, by the time this organization is vetted, we are very confident that we have the right team to capture the full potential of our brand offering and continue to innovate and excite our fans with great products and great experiences.

Eric Handler (Managing Director and Senior Research Analyst)

Very helpful. Thank you, Ynon.

Ynon Kreiz (Chairman and CEO)

Thank you.

Operator (participant)

Our next question comes from the line of James Hardiman with Citi. Your line is open.

James Hardiman (US Leisure Analyst)

Hey, good afternoon. Thanks for taking my question. So I wanted to circle back to sort of the implied Q4 top line. I think we're looking at, call it, mid-teens type sales growth. I think if just by judging by aftermarket trading, I think there may be some skepticism in that, right? And so I was wondering if you could help us with any nuggets that might shine some light on what percentage of that has already been booked, what the run rate of sales in 4Q is. I know it's only been three weeks, but ultimately, how much of this is optimism versus grounded in whether it's quarter-to-date sales or sort of forward-looking indicators?

And maybe to that latter point, I don't know, take us behind the curtain of the conversations you're having with retailers and what they're saying about their order intentions for the remainder of the season. It seems like you're confident that the quarter-to-date trend will continue. Maybe give us some data points behind that.

Paul Ruh (CFO)

Yes. Let me start, Jim. We just reiterated our full-year guidance, including the expectation of a good holiday season for Mattel. And that means a strong top-line growth for the fourth quarter, indeed. And we are strongly behind this for several reasons. Number one is we ended Q3 with POS growth across every region, including the U.S. We have seen that POS, which is a leading indicator of shipments, has continued to be growing strongly. And also, since the beginning of the fourth quarter, both POS for Mattel continues to grow in the U.S. and internationally. And the orders are following. The orders are following in the U.S. and also in international. And in the U.S., they have accelerated significantly. As I said, we monitor this week by week.

And based on what we see today, these trends are tracking in line with the full-year outlook for 2025. The other thing that underpins our balance of the year projection is our supply chain expertise and global commercial capabilities, which are a competitive advantage for us, and you asked about what's behind the curtain in terms of those relationships. It is a very close interaction. We do joint planning. We look at POS, and we make sure that we have the right product assortment in the right store, at the right place, at the right time, so the fundamentals of our business are strong, and the consumers are buying our products, and now what we are seeing in terms of the acceleration, in terms of the POS, and now the shipments, that's what gives us the reassurance to substantiate our guidance for the full year.

But I want to also pass it on to Ynon because I think there's important elements in terms of product offering that have us excited about the balance of the year.

Ynon Kreiz (Chairman and CEO)

Yeah, so James, as you know, the most important KPI that we always look at is POS. Consumer demand has been strong all year, and it's still strong now. We've seen it all along, and this is, by the way, not just for Mattel. We talked about the fact that the industry is up high single digits, so toy industry is probably, in terms of level of growth, much higher than the traditional low single digit at this time, so a lot of momentum overall. In terms of Mattel, we are very excited about what we're bringing out this holiday season. If you look at what we are putting out category by category, there's a lot of exciting product in vehicles. Of course, Hot Wheels is on a continuous momentum, but now we're adding the F1 offering and the new Speed Snap Track system, which we just launched recently.

This is a whole new impetus of buyers of the track system, which we innovated for the first time after decades of having this play pattern. In action figures, we've seen continued success with Jurassic, Minecraft, WWE, Toy Story 30th Anniversary, and Masters of the Universe ahead of the movie year. In games, UNO is performing strongly with more innovation and more line extensions. In building sets, we recently launched the Mattel Brick Shop offering, which is off to a very strong start, and that is another promising opportunity for us, a whole new business or product line that we introduced and is performing strongly. In dolls, we talked about the Wicked second movie, improving trends for Barbie, and performance overall across the portfolio.

And in Infant to Early Preschool, we expect to see improving trends for Fisher-Price with more innovation, product launches, Fisher-Price Wood Montessori launch on Amazon, more points of distribution. So all in all, a lot to play with. We have a lot of drivers in the fourth quarter. We work very closely with our retail partners. They're also looking to fulfill the demand. And ultimately, it's all about our consumers looking to buy your product. And if the answer is yes, it's now about fulfilling the demand and working closely with retail to put product on shelves.

James Hardiman (US Leisure Analyst)

Got it. And to that very point, I wanted to drill down maybe a little bit on the inventory commentary from earlier. Paul, I think you mentioned that if we combine that sort of owned inventory and retailer inventory, it's pretty normal for this time of year. Although, obviously, the owned inventory piece is, I think, up 12%, and I think you mentioned that retailer inventory is down modestly. I guess, where do you expect, and more specifically, where does your guidance assume those two numbers finish the year? Do we think retail inventories get back to 2024 levels, or do we think there's going to be more channel fill to happen as we look to 2026?

Paul Ruh (CFO)

We believe that over time, the trends will move in the normalized direction. This has been a particular distortion. But as we have adjusted our supply chains and our retailers have adjusted their supply chains as well, both combined inventory levels will gravitate to what was a normal level of inventory. It's early to say, and we will closely observe and act with agility. And that's what characterizes us, right? That's why we have such strong commercial capabilities. We've been doing this for many decades. And we will be continuing to work with our retailers to make sure that the product is on the shelf. So confident about that.

James Hardiman (US Leisure Analyst)

Very helpful. Thanks, and good luck, guys.

Paul Ruh (CFO)

Thank you.

Ynon Kreiz (Chairman and CEO)

Thank you.

Operator (participant)

With no further questions, I will now turn the conference back over to Mr. Ynon Kreiz for closing remarks.

Ynon Kreiz (Chairman and CEO)

Thank you, operator, and thank you, everyone, for the questions. In conclusion, while our U.S. business was challenged by industry-wide shifts in retailer ordering patterns, the key takeaway for the quarter is growth in consumer demand for our product in every region. We continue to make meaningful progress in advancing our IP-driven toy business and expanding our entertainment offering strategy. Looking into the fourth quarter and the balance of the year, with continued growth in consumer demand in the U.S. and internationally, and significant acceleration of orders from U.S. retailers, we expect a good holiday season for Mattel and strong fourth quarter top-line growth.

We will share a review of our full-year performance after the end of the next quarter and provide a detailed outlook for next year. We have much to look forward to in 2026. Thank you, and I will now turn the call back over to the operator.

Operator (participant)

Thank you. And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.