MAT
#Thank you, <UNK>
Good afternoon, everyone, and thank you for joining us for our third quarter 2017 earnings call
Our Q3 performance was clearly disappointing
<UNK>esults in the quarter reflect continued challenges in The Toy Box and certain underperforming brands that exacerbated by the T<UNK>U chapter 11 filing
Despite these challenges, we continue to make strong progress against the transformation plan we laid out in June
A critical step in our progress is announcing today a significantly expanded initiative to structurally simplify our business, and right-size our cost structure in alignment with our strategy
This will unlock substantial resources to invest in our transformation plan and enable us to drive towards the growth and profit targets we discussed at Investor Day
On today's call, I will provide an overview of our performance in the third quarter and related drivers
I will then share the progress we've made implementing our transformation plan and the roadmap to selected near-term milestones
Then our new CFO, Joe <UNK>, will provide further color on our Q3 results and discuss in detail our action plan to right-size our cost structure and reshape how we run our business
Joe will also discuss the timing of upcoming investments and our broader capital strategy, including how we plan to fund our transformation plan
<UNK> is also here to discuss operations, brand and marketing strategy during the Q&A portion of the call
Moving on to our third quarter results
Overall, results were significantly below expectations
In terms of revenue, international was stable, led by continued growth in Asia, however, the North American business was down 22%
We believe this is somewhat of a unique quarter, and we do not believe it reflects the underlying health and growth potential of this company
This decline is also a departure from what we expected when we spoke to you in June
So I will discuss the drivers in detail
About half of the North American revenue decline was driven by T<UNK>U. About a quarter of the decline was driven by tighter retailer inventory management, and the remaining quarter was driven by continued challenges in our Toy Box and certain brands
Fortunately, we believe that a majority of these issues are not long-term in nature and expected to turnaround over time
I'll walk through each of these impacts in more detail
The T<UNK>U chapter 11 filing was a significant drag on both revenue and profits in the quarter as we began to reduce shipping in early September due to significant concerns about the potential for the T<UNK>U chapter 11 filing
We then had to reverse certain revenue in connection with our filing, and we were hit disproportionately compared to our peers given the higher proportion of sales we realized through T<UNK>U. As I mentioned a few minutes ago, tighter retail inventory management accounted for about a quarter of the revenue decline in Q3. Although we have worked through the Q4 inventory overhang in the first half of the year, we continued to see divergence between POS and shipping into the third quarter
After in-depth assessment, we have identified two principal drivers of this divergence
The first driver is key retail partners moving towards tighter working capital management
We believe that we've been hit harder by this trend due to the evergreen profile of our power brands, which allows retailers to predictably forecast in-stock levels and hold less inventory
The second driver is our decision to transition to lower levels of retail incentive programs in 2017 relative to prior years
At the end of Q3, key retailer weeks on hand for our power brands were approximately 15% to 20% below 2016 levels
Over the last few weeks, we have seen some stabilization in retail partner weeks on hand, however, we will monitor this closely and do expect some ongoing downward weeks on hand pressure due to the continuing shift to e-commerce
The remaining quarter of the revenue decline is due to continued losses from certain underperforming brands
The biggest challenges have been in The Toy Box, in particular, with Monster High, Ever After High and Mega, as well as the fragmented long tail of launches which have more than offset positive gains elsewhere
In addition, as we shared in June, American Girl and Thomas remain in turnaround
Our action plans are well underway, and we expect to see benefit of this in 2018. In the third quarter, American Girl results were particularly stressed by comping revenue from a large partnership deal in the Middle East
Turning to margins
The challenges in the quarter, which were largely concentrated in North America, continued to sharply compress margins in Q3. Given the importance of this to our quarterly results, Joe will provide a detailed explanation in a few minutes
Despite these challenges, we saw several positive trends during the quarter
Barbie is growing POS double-digits globally and accelerated each quarter this year
As we shared at Investor Day, Barbie is the farthest along in developing physical systems of play and experiences, which demonstrates the clear benefits when we execute our strategy
We have continued to innovate our core doll play pattern; diversity is working and driving strong sales improvements for Barbie and Ken
We also continue to enhance the physical system of play with careers, which is accelerating alongside momentum in campers, horses, houses, travel and more
Our social community development on Instagram and new content programs such as Dolphin Magic on Netflix and Dreamtopia on YouTube Kids are driving excitement for our brand and product
And we still have a lot of runway to go further, with both physical and digital systems of play, consumer products, gaming and a broader content slate
We also are pleased with the performance of Cars 3. We are executing this well in close partnership with Disney and our retail partners
And despite challenges with T<UNK>U, we expect to come close to our original target
This is just one example of the strong partnerships we continue to invest in to build top partnerships with Disney, Warner Bros
, Nickelodeon, Universal and WWE
Enchantimals is another successful launch for us this year, with strong sales performance across our top launch markets driven by compelling content
In its first year, we expect Enchantimals to achieve top quartile performance among doll launches with excellent user engagement in our content and more expansion planned for next year
Hot Wheels is sustaining solid single-digit growth in POS with double-digit growth in Latin America
We continue to introduce excitement into the core car line as well as to improve our physical play system with higher quality play sets and interconnected track and construction systems
Our strong content Make it Epic on YouTube and hotwheels
com is helping to fuel brand passion and purchase expansion
Our core Fisher-Price business is generating consistent single-digit POS growth globally, with acceleration in China where we are delivering a strong omni-channel experience for parents
China is one of the largest populations of new babies being born globally, and also is now the second largest market for Fisher-Price
So, we believe there is significant upside potential ahead for this brand
As we look to Q4, we expect our key power brands and our Cars franchise to perform well
We are well represented on top toy lists across top retail partners, we have strong marketing investments against our top brands, and we have substantially improved our digital execution to ensure we are in step with the shift to online
At the same time, we expect continued drag from some of the issues we saw in Q3, and also intend to make the tough decisions necessary to right-size our portfolio before the end of the year
As it relates to our full year, we will clearly not achieve the top line expectation we discussed in June due to the factors I discussed earlier
Importantly, we are taking the necessary actions now to reposition for the future, with a priority on ending the year clean on inventories at retail and working through the long tail of previous product launches
We have conviction that this is the best decision for shareholders and enables us to move faster toward the results we expect in the medium term
In June at our Investor Day, we said that we would come back to you with more detail on our transformation plan, including how we will reshape and streamline our business model and how we will fund the investment plan
We discussed self-funding $150 million to $200 million of our transformation plan investment needs with cost reduction and reallocation
We also reconfirmed our previously announced $240 million gross supply chain anti-inflation program designed to offset the rising costs of labor, resins and packaging, which we expect to achieve through the course of 2018. Now that I have my new management team assembled, we have a clear view of the right-sized structure we need to execute our strategy
We believe we can reshape our business through portfolio simplification, organization realignment and an optimized number of product launches, which will allow us to eliminate significantly more cost than we articulated at Investor Day
After reviewing and realigning all lines of our P&L, we plan to eliminate at least $650 million in net costs over the next two years, up from $150 million to $200 million through a structural simplification initiative, including manufacturing, product, SG&A, and marketing to ensure our spending is right-sized to support our path forward
Our review of the unnecessarily high number of SKUs and product launches from the last few years and benefits from better-aligning incentives across our functions gives us confidence that we can deliver much greater savings and better focus our business on our most attractive opportunities
This more significant cost reduction from structural simplification will help us reposition our business more quickly to deliver on our medium-term transformation targets for revenue growth and margins that we shared in June as well as to fund our planned investments
We intend to invest approximately a quarter of this savings or $170 million over the next two years as the foundational spending for our transformation plan
Our priority focus will be investing in areas that present the greatest near-term potential to drive revenue and margin improvement
These investments will focus on four areas: omni-channel capabilities, which are critical to capturing e-commerce and revenue growth; emerging markets, where we have a demonstrated track record of accelerated growth; IT to improve line architecture, demand planning and forecasting, which are central to future margin improvements; and content and gaming, which underpin the development of our brands and present meaningful revenue and margin opportunities
In terms of investment to build out our connected systems of play architecture, we have determined that we can repurpose existing spending to fund this strategy
We believe next-generation connected play systems and technologies can become a meaningful portion of our product mix over time
We estimate this can contribute 15% of revenue with attractive margins and strong customer engagement in the medium term
We will use the most efficient approach to both our own development and partner development in a stage-gated manner
As discussed at Investor Day, we've already begun to make some investments in our strategic initiatives, which Joe will discuss in a few moments
Joe will also provide more detail on our structural simplification initiative and broader capital funding strategy
I will now walk through our progress to-date implementing our transformation plan
At our Investor Day, we outlined five strategic pillars: build power brands into connected 360-degree play systems and experiences, accelerate emerging markets, strengthen our innovation pipeline, reshape operations, and reignite culture and team
We have made progress against each of these pillars, and I will describe and discuss near-term milestones for the remainder of 2017 and 2018. The foundation to accelerating our progress is streamlining our organization and putting in place our new leadership team
We have made a number of key strategic hires, bringing on a new CFO, CTO, CCO and Chief People Officer, plus a new Head of Manufacturing and a new Head of Product Development; all of these leaders with proven track record in organization transformation
We have a world-class management team with full alignment to execute our strategy
In terms of 360-degree play systems and experiences, we are taking action to unlock growth potential in our power brands
As I shared in Q2, we launched and have completed an in-depth consumer journey and segmentation effort to anchor our brand portfolio and define specific roles and growth priorities for each
We now have detailed maps and action plans for how we will build out our physical and digital play systems and experience with deep focus on our top three power brands
This consumer and competitive segmentation analysis has reconfirmed the headroom for us to grow our power brand
We estimate that Hot Wheels has the potential to grow 2x to 3x, Fisher-Price 2x, and Barbie 1.5x over time
To accelerate our content efforts, we are in the final stages of regaining control over unexploited content rights for our power brands
This enables us to build a slate of premium content for our power brands and pursue more strategic deal-making across our partners to unlock value from one of the best portfolios of kids and family IP in the world
Looking ahead to 2018, for Barbie and Hot Wheels, we believe we can gain share across market through continuing to build out physical systems of play
We believe our core Fisher-Price business can regain consistent growth across top markets by re-anchoring on its learning and development heritage as a partner to help parents provide their children the best possible start
This global program will take best practices from China in omni-channel engagement and expand them across top markets
We expect to stabilize Thomas into next year
We announced recently that our refresh content is now complete
As a result, we are poised to take Thomas global, and will be activating with leading kids content platforms in major networks in the coming months
We expect to stem the decline in American Girl by executing the turnaround actions we have shared previously, and are excited about the opening of the new flagship store in New York City this November
We are on track to launch two next-generation connected products that are truly interactive and provide a new customer experience
Sproutling, launched this week, is a breakthrough product for parents that collect baby's heart rate, sleeping position and motion to provide insights into baby's sleep patterns
In fall 2018, we plan to launch a next-generation connected Hot Wheels experience
In terms of gaming, as I laid out in June, we have made great progress on scaling our global publishing, marketing and analytics capabilities, and are on track to launch two AAA new game titles next year in partnership with leading global development partners
Looking at emerging markets, we remain on track to scale China 3x to 4x as we shared at Investor Day
We are growing strong double-digits and gaining market share in China, led by our leading consumer and digital first approach, as Jeff Wang shared at Investor Day
Our direct parent engagement and our learning and development benefits are commitment to systems of play, and our strength in e-commerce underpins our success
China is a benchmark for the powerful impact our new strategy can have on our business across products
Looking to the rest of 2017 and 2018, we believe we will continue to gain market share led by digital partnerships across Babytree, Alibaba and JD
Our Fisher-Price led parenting platform, with over 250 pieces of curated parenting content and play tips launched recently to great success on Babytree
It will also launch soon in Alibaba at the 11/11 major holiday, which will expand our direct reach to millions more moms
This parenting platform effort will expand this fall on Babytree with an assessment tool that enables customized parent recommendations based on the development needs of each child
In addition, our learning center partnership with Fosun is progressing, with our first center scheduled to open in the first half of 2018. Looking at The Toy Box innovation pipeline, first, we continue to grow our investment in providing best-in-class relationship management for our top licensing partners Disney, Universal, Warner Brothers, Nickelodeon and WWE
Our global retail execution for Cars is exemplary
We continue to focus on superior product design and collaboration with all of our partners
We are passionate about their brands and creating breakthrough product lines to excite kids and collectors
Our Jurassic World line for 2018 is a great example of this commitment and impact, as we continue to receive rave reviews from retailers across the globe
In addition, we continue to develop co-production opportunities, and expect to announce at least two new co-production deals with top media partners
Second, we are streamlining our portfolio of smaller brands and new launches
For example, this year, we trimmed the number of brands by 30% from a high point in 2016, to enable us to better focus execution on the most important opportunities
Our success with Enchantimals and Kamigami are good examples of how we can execute better with increased commitment and focus
We plan to trim our launches for 2018 another 20% to enable us to drive greater impact from our investments
To underpin our successful transformation, we are aggressively reshaping our operations to be leaner, faster and smarter, unlocking the foundation for faster revenue growth and step change margin gain
Here is a quick progress report
We are on track with the initiatives we shared at Investor Day to reset our commercial operations with a focus on winning share in an omni-channel world
We also have launched our plan to create a streamlined and modernized IT infrastructure across our business, led by our new CTO, Sven Gerjets
Our supply chain continues to gain speed as Peter Gibbons discussed in June
His team is on track to reduce time to market by 50% versus the historic 12 to 18 months
We are already driving multiple products through this new approach with four new products launching recently through our accelerated process, all hitting in three to nine months
This quarter, we launched our new control tower, which, as Peter Gibbons previously mentioned, is designed to radically improve demand and supply chain planning, while lowering inventory and improving service
We are in the process of implementing a zero-based budgeting process for all areas across the company to better optimize and allocate existing spend to drive our key strategic pillars
We plan to reduce SKUs in double-digit percentages in 2018 and 2019 through brand product line optimization, smarter localization and merchandising differentiation
We are reassessing infrastructure and plan to announce a reshape of our manufacturing footprint in early 2018. We also are deeply invested in reigniting our culture
We are excited about how our wonder values are being embraced across the company, driving increased focus on creativity and collaboration, which is critical to supporting our transformation
We are reshaping the incentive system to better align with key performance metrics, which Joe will talk more about later
In summary, we've made substantial progress in restructuring our organization, so that we can operate more effectively in terms of strategy, planning, incentives, resource allocation and organization execution, and in turn, accelerate margin improvement and growth
The significant structural simplification program now in place, is the foundation for jump starting profit improvement as well as funding our transformation plan
Despite the current challenges, we continue to believe in the future of Mattel
We own some of the most iconic brands in the world, with a demonstrated ability to transform and meet the demands of tomorrow's kids and parents
We're in a growing industry and well positioned in the fastest growing market
We believe the progress we are making illustrates momentum and will allows to capitalize on our enormous headroom for growth
We are optimistic about the road ahead, but we recognize the need to make the tough decisions to address and resolve current issues and rigorously shape the business to capitalize on the many opportunities before us
We appreciate your support, as we continue to execute on the transformation of Mattel for the future
We are deeply committed to restoring profitability and delivering our transformation plan and maximizing long-term shareholder value
Now I will turn it over to Joe
<UNK>, you want to take that?
Sorry, Greg, was your question about specific brands? Could you just repeat the question just so we make sure we answer it?
So, Greg, as I shared earlier in my remarks, the divergence that we've seen between POS and shipping is largely explained by this inventory reduction situation that we articulated earlier
What we have seen is a stabilization of that trend towards the back half of the third quarter
And our sense is that we've largely worked through the biggest chunk of it, that roughly 15% to 20%
And we expect and will obviously closely monitor it going forward
There will always be a little bit of a downward pressure due to e-commerce, that pivot to e-commerce because it's more demand-driven supply chain, but we do believe that we work through the majority of that issue at this point
Well, the fourth quarter is obviously a very different quarter because you have the timing of shipment and sales
It can be a little bit different between the two quarters
But, yes, we would expect, over time, the POS and the shipping to align
Correct
As we were aware that they were potentially going to go bankrupt, as you know from public documents, we had a large exposure to Toys "<UNK>" Us
And not understanding exactly the timing of the bankruptcy, we made the difficult decision to begin to reduce shipments to them until we understood fully what the plan was
And then it took quite some time for us to begin shipping again, because of the timing of their own settlement
In fact, the final settlement only happened a couple of days ago
So, they account for more than half of the decline in North American sales in the quarter
Now, what I can tell you is that we've been going through each one of the brands against a very specific framework about where and how we want them to compete
What I would say is, one of the biggest opportunities for us is to, overall and then by market, have a much clearer shared understanding across our company about where we're trying to play and win
And so I do think we have significant opportunities in some of our brands to be far more focused about where our biggest opportunities are
We tend to expand age ranges quickly, or go into new categories, not always with as much depth or focus that I think we would benefit from for some of our brands
In addition, as we shared earlier on the call, one thing we've made very strong progress in resetting the foundation for our power brands, the center of the value propositions for those, putting quality back in those products
There have been a lot of choices made in the previous years to kind of take some costs out of the system
We put the quality back in, so we really command that premium price and experience
But in addition to try to outrun some of the challenges with Monster High, Ever After High and Disney Princess, we've launched a large number of items over that time period, which, I think, really drove a very high level of complexity, which was something that when I stood in June, I hadn't fully anticipated the scale of that SKU creep and the resulting cost around it
And when you compound that, as Joe was saying, with the relatively high sales targets that we were setting, you really just build up a tremendous amount of issues within our supply chain infrastructure as well as a bloated corporate center
So, I think those things are enormous opportunities for us to streamline, as I said on the structural simplification program, to focus on the things that offer us the biggest opportunity
And so, I think we're really excited about the going-forward plan to be leaner, meaner and faster
And then, <UNK>, on your questions on the cooler toys, the more fun toys, completely agree with you that creativity is the hallmark of this company, and something that we absolutely needed to reignite
The wonder values that we'd actually put in place are so much at the foundation of what's important in this company
In fact, just today, we had something we call Creative Con, and we've, under <UNK>ich's direction, created a creative counsel that really ties together our distinctive creative leaders and talent from across all of the brands we've been quite solid in the past and bringing them all together, and really enabling us to have really incredible mix fairs and other places where we're really celebrating creativity
We're bringing in external speakers to challenge our thinking and really taking more advantage of the inspiration that we have out there
In addition, I'm a big believer
If you look at many of the hottest toys that are in the market today, they're really very much driven by insights and the focus groups of the world
It doesn't take much to go online and see all the unboxing videos and see the things that inspire kids in the media today
And we very much need to be more aggressive of taking advantage of those insights, combining them with the latest materials, technology and other things to ensure that we are coming to the market more consistently with some of those breakthrough ideas, both within our existing core iconic brands as well as launching new initiatives
I'm very excited about certain products that we've launched this year for example such as Kamigami
We brought that to market in less than nine months from beginning to end
It's a really wonderful execution of how do we bring a magical experience with robotics to kids
And it appeals to both boys and girls, and it's a wonderful opportunity for us
Another great example of breakthrough innovation is our Imaginext, which continues to come out with some of the most creative and breakout toys in the marketplace
The Batbot has been featured as one of the hot toys for the holidays
And that's really a great example of us at our best when we really focus on that inspiration and innovation portion of the company
And that SKU rationalization initiative, actually, will create enormous opportunity for us to free up the time of our creative organization and our supply chain to focus much more on innovation versus the SKU creep
We have so many different versions for different retailers, the localization process and all those different things were actually making it harder for us to actually focus on the magic
So, we're very excited to get back to that focus in the company
Thank you
<UNK>, on the revenue piece, the way I think about it is, the reason why we gave you those dramatic numbers in terms of the SKU creep in the company is that a lot of that actually isn't attached to a lot of revenue, much of that was driven by localization practices
We're a very global business, and our localization didn't have a systematic process
Each one of the markets could request a localized version of almost product on the SKU list
And so, when you launch so many new things, the people could request their own version, that just drove the amount of complexity without a lot of return
In addition, there's been an increasing demand, which is an industry trend for merchants to want exclusives
Again, that was not a process that was managed centrally
So, for example, the hypermarket in France might have requested an exclusive, in addition to someone in the U.S
, in addition to somebody in Australia, et cetera
So, there's not as much issue in terms of revenue losses, you would think, given some of these things are driven by the multiplication factor of a long tail of launches, localization, lack of standardization and merchandising, lack of standardization across market
So that's one of the reasons why we were comfortable announcing a much larger cost-reduction initiative, because by streamlining and simplifying across the board, we can actually take a lot of cost out with a lot of revenue impact
We are still working our way
And this year, I think was the end of some of those bigger challenges such as the Monster High, Ever After High
We've largely worked our way through those challenges in our Toy Box large brands, where they were in very large decline, in fact – and I think you and I had even talked about the fact that Monster High and Ever After High, the loss from that was as big this year as it was last year
So, if you think about, we've had many strong performances, for example on Cars, but they've been offset by some of these continued falls
We've largely worked our way through those large numbers this year
So, we look at this as really a reset year for Mattel, and then we'll start to see the benefits of our transformation into 2018 with a lot more focus and a lot leaner approach to how we run the business
Thank you
I think that's a very good chain of logic
We're taking a tough look at all the different things that we're trying to put through our supply chain
Not just our own, but 50% is in-sourced today and 50% is outsourced
And so, the combination of the long tail of SKUs many of which have been ordered in quite small quantities, plus the forecasting approach where we started with a very high target and then worked our way down has led to essentially a lot of fragmentation, a lot of challenges in scheduling, as we talked about earlier, that are not optimal
And so, we are very confident when we're able to set a tighter plan from the beginning of the year, reduce the number of SKUs that we're trying to make that the alignment of those two things alone, gives you such a benefit on your existing and your vendor manufacturing footprint
And then going into the beginning of 2018, we'll also talk about the broader strategic approach to how we want to drive our investments and things like manufacturing going forward
Very viable, especially when you think about when you do that many short runs, it's just incredibly inefficient for you and the vendor
You just don't get optimal pricing
And so, we want to make sure that the way we're setting our plans, both the number of SKUs and the way we set our sales target enables our supply chain to be dramatically improved
And I know that our entire company end-to-end is really excited about that opportunity for structural simplification, because we'll be able to do some of the things that we really want to do for also our retail partners, which provide far better in-stock levels for them, which is just sales sitting on the table
And then in addition to that, we'll be able to get our products to market far faster, because there'll be a lot less pressure on our system
So, you can imagine that as we've discovered and got into this much more deeply than I was in June, it's very exciting for us to really put this kind of a program together across the company for how we're going to run this business differently end-to-end and free up that many resources so that we'll be able to actually have a very different profile of business going forward
As I shared earlier, we saw this as a trend after we worked off that inventory overhang from Q4, we started to see at the end of Q2 a little bit of a trend
We weren't sure if that was driven by e-commerce
And as we got into Q3 and spent more time working with our retail partners, we did assess that it was a more structural resetting of their inventories with us as their new working capital policies were kicking in
In addition to that, we had, as we shared, higher weeks on hand that perhaps others in the system due to some of the sales incentive practices that we had in the prior years
And therefore, we do think that this was a larger one-time structural adjustment into this year
But then it's starting to stabilize exiting Q3, and we would expect to see always a little bit of downward pressure with the shift to e-commerce, but we're not anticipating another step function decline that would happen rapidly
And to answer your other question on the advertising investment; this was a significant challenge
Again, as I dug in at a much, much more detailed level, what we uncovered as we moved to one brand leader that was one of the big changes we made so that we could really think about managing the portfolio on an integrated basis, so we have Juliana Chugg now looks across all of our brands
That was a key organization decision
As we then looked at that and really thought about how do we allocate our resources at a much more detailed level, we were uncovering that we were spending as much on a lot of these small long tail launches as we were, disproportionately versus their productivity, even versus our core brand
So, in fact, it's a double benefit for us that we can better optimize the investments in our core brand as well as put more investments, as I was sharing earlier, around the properties that we really believe in
So, this is going to give us, I believe, a significant return on the investments that we're making going forward
Fair
Think about it as having your SG&A in alignment with more industry standard level that you would expect, which when we de-scale we're not quite in alignment
Getting our A&P cleaned up, and then getting your COGS back, again, where a more simplified, more focused, lean machine would actually deliver a COGS line
So, we are very focused on a strong <UNK>OI for shareholders in our emerging markets
We actually have multiple of our high-growth emerging markets that are already extremely profitable
And we're very, very disciplined about how we're investing against the absolute size of the opportunity
So, for example, our tolerance for investment would be higher in a place like China, where you've got a 3 to 4x opportunity and the ability for us to establish ourselves as the clear differentiated market leader in a window where literally there is a breakout moment for parents and kids as the baby boomers move into child-bearing age
And then you've got, on top of that, the two-child policy, and then you've got rising income
So that's just an accelerating opportunity for us
So, we should over-invest
I think in some of the other markets, we're taking a very stepwise approach in thinking about how could we change the game and go into those markets with a more efficient model
With, in many of those countries, they are very digital first, particularly in Asia, and there's sort of an opportunity for us to leverage partnership such as Alibaba and others so that we can enter and scale more cost effectively into those places
So, we're taking a very disciplined approach to it
And we'll be sharing more with you over the coming quarters given that we do believe this is one of the most exciting opportunities in the industry
Sure
Are you referring to the Barbie and Fisher-Price examples that I gave in terms of the refresh that we've done? Is that what you mean?
So, as we've created the 360-degree play experiences and the systems work, we've systematically laid out both for those brands and across markets where we see the most attractive opportunities for growth
And for example, in the case of Hot Wheels, if you just look at us continuing the strength on the track set side, as well as the diversification of our core iconic car, you add back in terms of driving up your attachment rate, as I talked about
When I was at Investor Day, and then you have us taking a modest portion of the construction industry, for example, of that segment, in some of our key markets, you pretty quickly get to some of those numbers
So, we've sized these both in terms of looking at our share in existing categories, looking at key adjacencies where we have a right to win, and then looking at how would we layer that by market
So, we've done that for each one of these brands
And that's how we think about that
We've also looked at, obviously, the market growth rate versus our growth rate, the benchmark for what we think is achievable and what other people have done in similar circumstances
And we do feel pretty confident
And obviously, the profile is slightly different for each one, right? For Hot Wheels, obviously, it's the attachment, right, of the play sets and the track sets, and then obviously, also moving into the construction play pattern
In the case of Barbie, we've actually been that size in the past
We've been a 20% share player in the doll industry before
So, how you think about that is regaining our footprint and really innovating across more of the doll platform as well as extending some of our experiences
And on the Fisher-Price side, again, we have been a much bigger player and a much stronger player historically, but for different reasons around margin decisions and other things like that, we'd exit some of the categories
If you thought about us as consistently executing the range of products that a mom wants for her baby from zero to five, and doing that consistently well, plus the enormous opportunity in a place like China, which is now the number two brand for Fisher-Price, again, you can get to these numbers quite easily, and you don't need everything to be perfect
So, let me take these in turn
First, American Girl is just a phenomenal franchise
And we have enormous opportunity to regenerate that business and really get back to that direct to consumer excellence that really was the hallmark of that property historically
In terms of the store footprint, we will always be optimizing the returns of those things
It's a very profitable franchise for us
So, it's, in my view, much more about resetting the stage for how do we actually sustain the steady growth of the franchise, and the consumer engagement through C<UNK>M and other content-driven initiatives that built passion for the franchise
It's still one of the most beloved product of all times
In terms of Thomas, I'll take that in two parts
The HIT acquisition, as I've really looked into the incredible IP library that this company has
One of the things I had mentioned on the call was, one of my priorities was to ensure that we had taken back control over the rights of our IP, because we have one of the best portfolios of kids and family IP in the world
And we were not fully taking advantage of the opportunities against that IP in terms of how we thought about content development, which then, I think, dovetails into the opportunity for Thomas
I think when the company purchased Thomas, they had a strong content development capability
I can't really speak to the past, but I think we did not probably leverage those capabilities as well as we should have, but we still actually have those incredible IP assets
Thomas' challenge is – again, still a very beloved franchise, but the competitive market, and we were not as quick to the punch as we should have been in terms of updating and refreshing that content
I'm incredibly excited about the new content we just launched
You can search for it online
We just launched it at MIPCOM to rave reviews
And I feel like we're right in the zone of really what matters
We've got three new girl categories
Thomas is getting out of Sodor and he's traveling the world
And in addition, we have partnered with the UN in having Thomas teach kids about some of the key elements of sustainability, which we know is incredibly important to millennial moms
So, Thomas really just needed to be modernized, but the beloved play pattern and its success is really significant
And if you take a market like China where we're extremely successful with Thomas, and we do a theatrical and that sells out instantly
We localize the engine
We've done a wonderful job of making it part of popular culture
We just actually launched a movie there in September
It was number two in the box office during that period
So, we know when we execute this franchise well, we deliver enormous returns for the company, but we've not done a consistently good job as I talked on Investor Day at supporting these franchises across markets
So, <UNK> and I are extremely aligned in how we could think differently, and one of the reasons we flattened out our international structure with things reporting directly to <UNK>, and are driving a very different kind of an accountability approach to how we develop and manage our franchises across markets
I don't know <UNK> if you want to add anything
Our license partnerships are a real focus of our business
In my remarks earlier, I emphasized the fact that partnerships with people like Disney, Warner Brothers, Universal, Disney, WWE are at the cornerstone of leveraging our capabilities of the company, both our creative and innovative designs, as well as the way we can take products to market globally
And I think our success with Cars, despite the initial slow box office in the U.S
, and then our ability to take that franchise globally and come close to our initial targets in close, close partnership with Disney really demonstrates our ability to take a franchise and take it to the next level
The Jurassic line that we put out next year, incredibly excited about that partnership with Universal
We've received rave reviews from retailers across the world about the innovation that's in that product, and how excited they are to carry that at retail
And <UNK> has been working literally weekly with all those partners, and we're excited about what's ahead, <UNK>
