Mattel Inc (MAT) 2004 Q4 法說會逐字稿

Good day, and welcome, everyone, to the Mattel Incorporated fourth quarter 2004 earnings results conference call.

Today's call is being recorded.

With us today from the company is the Senior Vice President of External Affairs, Ms. Dianne Douglas.

Please go ahead, ma'am.

Thank you.

Good morning, and welcome to Mattel's fourth quarter earnings conference call.

I'm Dianne Douglas, Senior Vice President of External Affairs.

And joining me today are Bob Eckert, Chairman and Chief Executive Officer.

And Kevin Farr, Chief Financial Officer.

Earlier this morning, we issued a press release which detailed our results for the fourth quarter and full year 2004.

On the call this morning you will hear brief remarks from Bob.

Kevin will provide a review of the financial results, and then we will be happy to take your questions.

Before we begin the formal remarks, let me make certain statements made today may include forward-looking statements about Management's expectations, strategic objectives, anticipated financial performance, and other similar matters.

Such forward-looking statements will include statements regarding our Barbie brand and Learning category initiatives, performance of the Barbie and other core brands, the U.S. retail environment, including store rationalizations and inventory management.

Costs, including resin and other commodity transportation and labor costs.

Sales growth, alignment with retailers, development of new channels, supply chain management.

Our future effective tax rate, assessment of repatriation of foreign earnings and the tax effects thereof, collection of certain accounts receivable, our debt to total capital ratio.

Capital expenditure goals, investment in strategic initiatives, profitability, cash flow nd deployment of cash flow and long-term value creation.

There may be additional forward-looking statements in response to questions or otherwise.

We intend for these additional forward-looking statements to be covered by this cautionary statement.

A variety of factors many of which are beyond our control affect the operation, performance, business strategy and results of Mattel concause actual results to differ materially from those projected in such forward-looking statements.

Some of these factor are described in our 2003 report on 10(K) filed with the SEC and Mattel's other filings made with the SEC from time to time as well as in Mattel's other public statements.

Mattel does not update forward-looking statements and expressly disclaims any obligation to do so.

Information required by Regulation G regarding non-GAAP financial measures is available on the investors and media section of our corporate Web site, mattel.com, under the sub-heading financial information and earning releases.

Now I would like to introduce Bob Eckert.

Thank you, Diana.

Good morning everyone.

While Kevin will take you through the financial details, I would like to give you my thoughts on how we fared in 2004 and provide a look into our priorities for 2005.

In 2004 retailers remained cautious, tightly managing inventories all year and consumers continued the trend of shopping later in the holiday season.

This translated into more sales shifting into later in the year from the third quarter, into the fourth quarter, no matter how late in the fourth quarter.

In the end holiday season was okay, not great but not bad.

According to NPD, on a year-to-date basis through November sales in the overall U.S. toy industry were down about 5 percent.

In this environment we held our own with our share up a couple of tenths of a point.

Now, encouragingly the fourth quarter to date info, that is October and November, showed improved trends in our consumer take away.

I think it's reasonable to conclude that retailers saw a bit of an uptick in our business, at least compared to their muted expectations.

And as a result our holiday season reorders were a bit stronger.

I'm also happy to say that we made good progress on two of our key goals for 2004: Invigorating the Barbie brand and building on our success with the learning initiative.

As we told you a year ago the Barbie brand is in transition and now we are beginning to see the fruits of our hard work.

We started this process with the development avenue strategy designed to regain relevance with girl.

We made innovative improvements in the product line and launched a new brand campaign highlighting a fresher, more relevant image.

Our efforts were rewarded with improved performance of retail and the holiday season reflected by significant gains in market share.

You heard us say all year that our focus was on improving Barbie performance at retail because that's where the turnaround begins.

As sell through trends improve retailers gain more confidence in the brand and that translates into stronger support and presence at retail in the future.

And that in terms in approvals of our shipping.

So we are clearly early in the cycle.

We still have worked to but we feel good about our progress and we have confidence as our strategy.

We also made excellent progress with our learning initiative.

I strategy and bid segment is not to rely on a single product platform but rather to introduce a variety of platforms designed to appeal to different age segments.

In 2004 new products including Fisher-Price laugh in learn systems for infants and interact TV for preschoolers helped us gain share in this infant preschool category.

As we look forward the business environment 2005 doesn't look that different from 2004.

We expect the retail environment in the U.S. and international to continue to be challenging as retailers rationalize serious and priority inventory.

We expect input cost to go up primarily as a result of oil based revenue and transportation prices as well as other commodity and labor costs against this backdrop we have two over reaching goals for the year: First to drive growth by continuing to turn the Barbie brand around while maintaining growth in our other core brands globally.

We are also better align with growing retail customers and continue to grow new channels.

Second we will further tighten our supply chain we have already gun planning for the next question of centralized E. procurement and rationalized manufacturing and vendor sourcing.

Finally as I hope we've demonstrated over the last four years we are committed to maximizing value for our shareholders by generating strong cash flow and deploying it effectively.

Thank you and now I would like to turn the call over to Kevin for a financial review of the quarter and the year.

Thank you, Bob, and good morning, everyone.

My remarks regarding the fourth quarter and full year financial performance will be organized in the following manner: revenues by geography, core categories of brand, key drivers of the P&L, cash flow from operations and the balance sheet at December 31, 2004.

To facilitate my review I recommend that you refer to the exhibits in the press release.

I'll begin with a discussion of the worldwide growth sales shown on Exhibit 2.

As a reminder the company changed the way it classified certain close out sales within its statement of operations beginning October, 2003.

This change did not benefit sales growth or GMs in the fourth quarter of 2004 when compared to the same period in the prior year because the change was made at the beginning of the fourth quarter of 2003.

However, for to the thousand four full year this change resulted in an additional benefit of 80 basis points to sales growth and a negative impact to gross margin of 40 basis points when compared to the prior year.

For analytical purposes close out sales by business units on a quarterly and annual basis is available in the investor and media seconds of our Web site.

I'll start by reviewing sales for the fourth quarter.

Total worldwide gross sales for the fourth quarter were up 7 percent including a benefit of currency exchange rate at two percentage points.

U.S.

Sales grew 10 percent and international sales grew 3 percent include ago benefit of five percentage points from changes in currency exchange rates.

On a regional basis sales in Europe were flat include ago seven percentage point benefit in changes in current seeks change rates.

Sales in Latin America were up 12 percent with no impact on sales growth and changes in currency exchange rates.

Sales in Canada were up 7 percent including a six percentage point benefit from changes in currency exchange rates.

And Asia Pacific was down 4 percent, include ago three percentage point benefit from changes in currency exchange rates.

I will now review our core categories of brands for the fourth quarter.

Mattel brands.

Sales from Mattel brands increased by 5 percent include ago two percentage point benefit from changes in currency exchange rates.

Worldwide Barbie sales were down 1 percent include ago three percentage point benefit from changes in currency exchange rates.

Domestic Barbie sales were up 3 percent while international Barbie sales were down 4 percent include ago benefit of five percentage points from changes in currency exchange rates.

As Bob said earlier the Barbie brand is showing science of improvement with encouraging performance at retail during the holiday season.

Worldwide sales of other girl brands were up 1 percent include ago benefit of three percentage points from changes in currency exchange rates.

Increasing in sales of Polly Pocket and new introductions declining sales of discontinued product lines.

U.S.

Sales of Other Girls brands increased 10 percent while international sales declined by 6 percent including a five percentage point benefit from changes in currency exchange rate.

Sales in the Wheels category grew 1 percent include ago benefit of two percentage points from changes in currency exchange rates.

Sales growth of Hot Wheels worldwide was partially offset by the decline in Tyco R.C. sales worldwide and Matchbox sales internationally.

Entertainment sales grew 30 percent including a two percentage point benefit from changes in currency exchange rates.

Contributing to soft sales growth in the entertainment category were double-digit increase in games related to the success of and launch of Juicebox as well as continued strength in our mail action entertainment properties like Batman and Megaman.

Fisher-Price brands.

Worldwide sales for Fisher-Price brands were up 10 percent for the fourth quarter include ago benefit of two percentage points from changes in currency exchange rates.

With core Fisher-Price up 7 percent and Fisher-Price brands up 34 percent.

Sales of core Fisher-Price in both the U.S. and international markets were strong, driven by sales of Preskool key driver products and the Baby Dear line.

U.S. international sales of Fisher-Price brands grew double digits, driven by strong sales of Dora the Explorer and learning products like Interact TV and Learn Through-- (sp).

American Girl brands.

Sales of American Girl brands were up 7 percent, fueled by the continued success of American Girl Place in New York City, new product introductions in the American Girl collection and increased brands awareness at the first American Girl live action film aired on the WB over the Thanksgiving holiday.

Now I'll review sales for the full year.

Worldwide gross sales were up 3 percent, reflecting a benefit from currency exchange rates of two percentage points.

International sales grew 7 percent, including the benefit of five percentage points from changes in currency exchange rates.

And U.S. sales were flat with the prior year.

On a regional basis, sales in Europe were up 4 percent including an eight percentage point benefit from changes in currency exchange rates.

Sales in Latin America were up 13 percent, including a negative impact of two percentage points from changes in currency exchange rates.

Sales in Canada were up 6 percent, including a five percentage point benefit from changes in currency exchange rates.

And Asia Pacific was up 19 percent, including a six percentage point benefit from changes in currency exchange rates.

I'll now review our core categories of brands for the full year.

Mattel brands.

Worldwide sales for Mattel brands increased 1 percent, which included a benefit of three percentage points from changes in currency exchange rates.

The sales decline reflects a 5 percent decrease in U.S. sales, partially offset by a four percentage point increase in international sales, which included a benefit from changes in currency exchange rates of six percentage points.

Worldwide Barbie sales were down 8 percent, including a benefits from changes in currency exchange rate of three percentage points.

This reflects a 15 percent decline in the U.S. sales and a 3 percent decline in international sales.

International sales included a benefit of five percentage points from changes in currency exchange rates.

Improvement in the performance of Barbie branded retail is encouraging, but as Bob said earlier, there is still more work to be done and we are continuing our efforts to invigorate the Barbie brand.

Worldwide sales of Other Girls brands were down 10 percent, which included a benefit from changes in currency exchange rates of three percentage points.

The sales decrease is primarily the result of new product introductions not fully offsetting the declining sales of discontinued product lines.

Worldwide sales for the Wheels business were up 3 percent, which included a benefit from changes in currency exchange rates of three percentage points.

The increase in the Wheels business was primarily driven by double-digit sales growth of Hot Wheels in international markets, partially offset by sales declines of Hot Wheels in the U.S. and Matchbox worldwide.

Sales in the Entertainment category were up 22 percent, including a benefit from changes in the currency exchange rates of three percentage points.

Contributing to strong sales growth in the entertainment category were double-digit increases in gains related to the success of Scene It and the international launch of Juicebox, as well as the continued strength in our male action entertainment properties like Batman, Megaman and Yu-Gi-Oh.

Fisher-Price brands.

Worldwide sales for Fisher-Price brands were up 8 percent, including a benefit of one percentage point from changes in currency exchange rates.

U.S. sales were up 4 percent, while international sales were up 18 percent, including a benefit of six percentage points from changes in currency exchange rates.

Strong sales growth of the core Fisher-Price and Fisher-Price brands in both international and U.S. markets were partially offset by declines in Power Wheel sales in the U.S.

Worldwide sales in core Fisher-Price were up 9 percent, including a two percentage point benefit from changes in currency exchange rates.

U.S. sales were up 6 percent and international sales were up 16 percent, including a benefit of seven percentage points from changes in currency exchange rates.

The increase in sales were primarily driven by Infant and Preschool key driver products like Little People, Laugh-N-Learn and Peak a Blocks, as well as continued growth in the Baby Dear line.

Worldwide sales for Fisher-Price brands were up 19 percent, including a two percentage point benefits from changes in currency exchange rates.

U.S. and international sales grew double digits driven by an expanded learning category and the popularity of new products featuring Dora the Explorer and Winnie the Pooh.

American Girl brands.

Sales of American Girl brands were up 10 percent versus the prior year.

The increase in sales is contributed to the success of the new American Girl store in New York City and heightened interest in American Girl collection dolls like Samantha and Nellie, as a result of the live-action made-for-TV movie that aired over the Thanksgiving holiday.

Before I begin reviewing the P&L , let me remind you that the Company completed its financial realignment plan in the fourth quarter of 2003 and recorded pretax charges of $0.4 million and $26.3 million during the fourth quarter and full year in 2003, respectively.

Now let's review the P&L , which is shown on Exhibit 1.

For the fourth quarter, gross margin of 48.4 percent, a 130 basis point decline versus the prior year.

Compared with the prior year, the gross margin benefit from changes in currency exchange rates more than offset by higher royalty and obselecence costs, a lower margin product due to impact of mix and value enhancing initiatives and higher external cost pressures.

For the year, gross margin was 47.2 percent down 180 basis points from 49 percent in 2003.

Gross margin was negatively impacted by sales of lower gross margin product, including the impact in mix, value enhancement initiatives, the change in class of case unit (phonetic) closeout sales and higher royalties and external costs.

For the fourth quarter, advertising expense of $279.1 million were 15.1 percent of net sales, versus 15.8 percent through last year's fourth quarter.

For the year, advertising expense was $643 million, or 12.6 percent versus 12.8 percent last year.

For the quarter, SG&A were $302.9 million, or 16.3 percent of net sales, down ten basis points compared with last year's fourth quarter.

For the year, SG&A expenses were $1.04 billion, or 20.3 percent of sales, which is flat with the percent of net sales in 2003.

For the quarter operating income was $314 million, or 17 percent of net sales, down 50 basis points compared with last year's fourth quarter.

For the year operating income was $730.8 million or 14.3 percent of net sales, down 150 basis points from prior year, reflecting overall lower gross margins, slightly offset by lower advertising expenses.

For the fourth quarter, interest expense was $25.4 million compared with $23.8 million in the fourth quarter of 2003.

For the full year, interest expense was $77.8 million, compared with $80.6 million for full year 2003.

For the full year the lower interest expense primarily reflects the benefit of lower long-term debt levels, more than offset by higher average seasonal borrowings.

In the fourth quarter of 2004, other nonoperating income net was $6.1 million versus $10 million a year ago.

This quarter's nonoperating income net relates primarily to a gain realized from an insurance settlement for the storm damaged distribution center.

For the full year 2004, other nonoperating income net was $23.5 million versus $16.8 million in 2003.

This year's nonoperating income net is primarily the result from the sale of marketable securities in 2004 of $18.3 million, which was a gain.

As a reminder in the fourth quarter's of 2003 the Company recorded gains from a sale of marketable securities of $8.6 million and for the full year of $15.5 million.

As of year end 2004, the Company had approximately $26 million in unrealized pretax gains on the balance sheet associated with marketable securities.

During the fourth quarter, the Company reached a settlement with the Internal Revenue Service regarding the examination of its Federal Income Tax returns for the years 1998 through 2001.

As a result, the Company recognized a nonrecurring benefit to net income of approximately $65 million, resulting from the reduction of certain tax reserves related to these periods that are no longer necessary.

As previously disclosed in our 2003 annual report of Form 10(K) the examination of prior years Federal Income Tax returns by the IRS are performed regularly in the normal course of our business.

For future periods Mattel's effective tax rate is expected to be more consistent with the 2003 rate of 27.4 percent.

On October 22, 2004, the president signed the American Jobs Creation act of 2004.

The act creates a temporary incentive for U.S. corporations to repatriate its annualized income earned abroad by providing an 85 percent dividends received deduction for certain qualified dividends.

As of December 31, 2004, Management has not decided on whether or what expense the Company may repatriate foreign earnings under the act.

Therefore, the 2004 financial results do not reflect any provision for taxes on the cumulative balance of $3.1 billion of un-remitted foreign earnings as of December 31, 2004.

Based on the Company's analysis to date, the company may repatriate up to $2.39 billion with a respective tax liability up to approximately $110 million.

We expect to be in a position to finalize our assessment during the first half of 2005.

So, to summarize the P&L , for the year we reported net income of $572.7 million or $1.35 per share diluted versus last year's net income of $537.6 million or $1.22 per diluted share.

In addition to the nonrecurring positive impact of the tax settlement, profits reflected higher sales volume more than offset by lower gross margins.

Now turning to the cash flow and balance sheet.

Cash flow from operations for the year was $570 million, driven primarily by net income of $573 million and depreciation and amortization of $182 million offset by uses of cash for working capital.

We have continued to return excess capital to our shareholders in the form of cash dividends and share repurchases.

In the fourth quarter, we paid an annual cash dividends of $0.45 per share, up $0.05 from the prior year.

And, during the first half of the year we repurchased approximately 14.7 million shares of our stock at a cost of $255.1 million, representing approximately 3 percent of outstanding shares.

At year-end, our cash on hand was over $1.1 billion.

It was consistent with cash levels on hand at the end of 2003.

Our receivables at $759 million were 37 days of sales outstanding, increased by nine days versus last year.

This increase reflected a significant shift in timing, as more of the shipments for the fourth quarter occurred later in the quarter.

We have not changed our customer terms and we expect to collect these balances in the first quarter.

Excluding the year-to-year change in factoring, which was down $10 million versus the prior year, receivables were up $205 million with DSO increasing by seven days.

Inventories at $418.6 million were up $29.9 million, or 8 percent versus 2003 and representing 89 days of supply, which is one day lower than last year.

Our net adjusted retail levels of our products finished the year down mid-single digits.

Our total balance sheet debt decreased by $42.9 million and our debt net of cash improved by $47 million from a year ago.

Cash exceeded debt by $538.7 million, reflecting the strong cash flow generated by our operations.

Our debt to total capital ratio ended the year at 20.6 percent versus 23 percent last year, essentially in line with our long-term goal of 25 percent.

Capital expenditures for the quarter were approximately $35 million, which brought the full year total to $144 million which is below our long-term range of $180 million to $200 million, but consistent with our expectations for the year.

As Bob said earlier, we made progress against our goals in 2004, but we have more work to do.

We have fared well in a challenging retail environment, but know all too well that the New Year will bring a fresh set of challenges.

We believe retailers will continue to focus on inventory management and rationalized stores.

As they evolve, so will we.

We also expect to experience continuing cost pressure for raw materials, including oil and resin, and we will continue to invest in strategic initiatives that will benefit the business over the long-term.

Over the long-term we believe we continue to believe our businesses should generate strong profitability and significant cash flow.

Our primary goal is to boil that cash flow to maximize long-term shareholder value for our shareholders.

Now we would be happy to take your questions.

[Caller Instructions].

We will go first to Joe Krutick of Smith Barney.

Good morning.

Thank you very much.

I had a few questions, please.

Bob, with the challenging environment, do you think that Mattel might be in a position to be considering some price increases on selective products, despite the fact that the industry has never really never been able to do that?

The second question is, you gave an overall inventory outlook.

If you could be more specific how Barbie inventories have fared, both domestically and internationally?

Third is on the gross margin outlook, which seems to be challenged, how you think some of the factors affecting that may play out over the next year?

And finally, just on acquisition outlook, how you see opportunities in the marketplace today.

Thank you very much.

Hi, Jill.

Let me begin, good morning, and then I will turn it over to Kevin.

Let's start with pricing.

It is clear that raw material prices are going up.

Oil is running in the high 40s per barrel, labor costs are increasing in some of the key manufacturing regions.

In the past we have chosen to hold pricing and we've used process improvements and efficiencies to partially offset the cost pressures.

We will continue to look for efficiencies in our supply chain.

But over time our margins have eroded.

The costs seem to be sustainable.

So beginning this year we did take a modest price increase that partially absorbed some of the increased input costs.

So we are not really pricing just with things like the barrel market up and down, but when we see what looks like a stainable increase in costs, we add price.

Let me now turn to Barbie.

The answer to your question on Barbie inventories is, we believe, according to our calculations that they are down for the year at retail and it's consistent with our other product lines.

There have been three keys to the Barbie turnaround.

First, rebuilding relevance with girls.

I think we are well on our way with the Worlds of product and improved marketing.

The second objective is to regain market share.

We are up on a year-to-date basis, but fourth quarter to date, that is October and November, showed dramatic improvement.

We outsold the competition by more than three to one, which is an increase from the two to one that we had been running for the past year.

And that's despite one of the major retailers devoting the cover of its fall circular to the competition, not just in the toy section, but the cover for the entire store.

So clearly the momentum is with us in market share.

And our next priority is the third objective, which is to restore retailer confidence.

Barbie is the best selling toy in the U.S.

It is the number one brand of all toys at each of the top five retailers.

It's the number one brand of toys in the world.

Our job is to overcome the hoopla and the hype and the propaganda, and help retailers focus on the facts.

We have a lot of work to do.

But given the trends, we have confidence in our strategy and I'm pleased with our progress.

Now Kevin can talk about gross margins.

Okay, Jill.

Coming into this year, we said we expected gross margins to be under pressure as we invested our brands to regain sales momentum, but faced cost pressures for raw materials and distribution.

Well, that view held true throughout the year and our margins were negatively impacted by the shift mix of cross brands, more Fisher-Price and boys, less Barbie, and in some cases within brands, the lower margin products.

And also by increasing royalty expense due to the success of our entertainment properties, featuring popular characters like Dora the Explorer, Yu-Gi-Oh and the WB properties.

And finally, external cost pressures from oil related to input such as transportation and resin, as well as other raw materials and labor costs.

But we plan to continue our efforts to tighten our supply chain and control costs.

And, as Bob said, we are taking a modest price increase to offset some of these partially-- to offset some of these higher costs beginning in January 2005.

We see many of the same challenges for 2005 and plan to continue to invest in our brands to regain sales momentum.

To the extent possible, we will continue to work on savings of procurement initiatives to help offset some of these pressures on gross margin.

But there's no assurances that we will be successful in offsetting all of these costs.

And, Jill, finally with regard to acquisitions, we have publicly talked about our capital investment framework a couple of years ago and we continue to march down that path.

We will make strategic acquisitions if we can find the right things at the right time at the right price.

And we will continue to return excess funds to shareholders.

In the fourth quarter, we paid our annual cash dividend of $0.45.

We have about a 2 or 2.5 percent dividend yield, about 1/3 earnings payout, and as we benchmark the rail run (phonetic) consumer goods companies, we are comfortable with that level.

Over the past 18 months we've repurchased about 6 percent of our shares outstanding.

Great.

Thanks very much.

We will go next to Dean Gianoukos of J.P. Morgan.

Hi.

Just a couple of questions.

Basically, you're saying it sounds like the Barbie retail is up more in the shipping.

Can you just-- Can you give us that number?

Secondly, I thought I heard Kevin say the COGS number had some obsolescence in there.

If you did say that, can we get a sense of how big it was and what it was?

Then, can you comment about Juicebox retail take-away, whether you were happy with that and whether it was up-- well, I guess it was up, but how much it was up or how much it moved relative to your expectations?

And then, finally, what is your plan or, if any, given that you are up against Star Wars this year?

What do you expect that to do to your business and do you have anything planned to sort of go up against it?

Thanks.

Dean, this is Bob.

Let me ask a clarification.

Wat number are you looking for on Barbie?

I didn't know if you had given us retail take-away, how much it was up in the fourth quarter?

We don't have it because we haven't finished the fourth quarter as far as NPD.

So we don't know it and we don't generally talk about individual line items within the NPD report.

But I can tell you that at least through the first couple of months in the fourth quarter, October and November, the Company did well in market share and Barbie did well as well, as I already talked about.

We also gained share in vehicles.

We gained share in action figure.

We gained shares in games and puzzles, we gained share in and infant and preschool.

So at least the beginning of the fourth quarter looked very good for our brands.

Let me spend a minute on your question on Juicebox and then I will turn it over to Kevin.

We like the product.

As you know, it has some advantages overt competition.

But our execution on Juicebox was only okay.

Some retailers did well with it, others didn't.

We expect to add more software to make additional improvements to it this year.

With regard to obsolescence, for the quarter it was up but for the year it was basically flat.

Was there anything in particular that you took out in the fourth quarter?

No.

And in your question on Star Wars, I think you are probably better off asking Hasbro about their expectations for Star Wars than us.

We have a good lineup of entertainment properties this year.

We did well on our entertainment segment last year.

We continue to have Yu-Gi-Oh, which was up double digits in both shipping and take-away in 2004, despite the fact that it's been around for awhile.

Megaman is off to a very good start and Batman is growing in double digits for us as well.

So, we think we have some action going on in entertainment.

Then just do you have any comments on MJA (phonetic) press release about its sales figures?

I know the comps were-- that they gave out were a little bit tricky and it was hard to take anything away from it.

But it sounds like you've gained a lot of share and now you are saying you are outselling them three to one versus two to one.

Has anything changed in January?

Is there any reason to consider the press release at all?

I think you are better off talking to other people about their releases.

I can tell about you our businesses but I can't really reflect on somebody else's.

Okay.

Thanks.

Thank you.

We will take our next question from Linda Bolton Weiser of Oppenheimer.

Thanks.

Just going back to the price increase, can you make a comment as to the magnitude of the price increase and also what product line areas?

And secondly, there's been some consolidation here going on in consumer products.

Does Mattel need to be part of a bigger company?

Well, Linda, you saw somebody else bid more for Gillette than we were willing to.

So I don't know how that plays out.

As it relates to the price increase, I think we took a fairly modest price increase.

It was essentially across the board.

It does vary by item and we price our products by item.

But probably the best way for you to think about it is, it was across the board.

It was global.

It was modest in terms of-- you know, think in the neighborhood of two, three, four percent, varying by item, not some significant number.

But enough so that we can at least we can offset some of the sustainable cost increases that are coming at us.

Okay. guess this is a follow up to that.

I mean, if 10 percent of your COGS roughly is resin and it's up 25 percent in '05, you would only need about a 1.5 percent price increase to offset.

So it sounds like you are going to get full offset.

Would that be fair to say?

Not necessarily, because there's other costs increasing beyond resins.

Labor cost is up, energy costs are up, transportation costs are up.

We've seen what we think are some reasonable cost increases throughout the cost of goods.

Okay.

Thank you.

Thanks Linda.

Thank you.

We will take our next question from Sean McGowan of Harris Nesbitt.

Hello, thank you.

I also have a couple of questions.

One, Bob, did you see any material shift in channels, particularly as the end of the year approached?

It seemed like Wal-Mart had a really big thrust at the end of the year, the last couple of weeks.

Did you see a noticeable shift in the share of your business by channel?

And a couple of other questions.

One, given that Wal-Mart push right at the end of the year, would you expect the first quarter ability to ship into retail to be any different from last year?

And then finally, maybe for Kevin, if you look at what seems to be the early stages of a Barbie recovery, can you talk about what the implications of what that might be on gross margins, you know, regarding mix pressures that you had in the past.

If Barbie is going the other way now, what are the implications for gross margin?

Thank you.

Sean, this is Bob.

Let me start with the channel mix.

It does vary significantly by product line for us.

Some retailers did very well, for example, in products including Barbie, and others did well with something like Juicebox.

So the mix did vary.

But in general we did see nice growth among what we would call alternate channels or those types of channels that are outside of the top four, five, six toy retailers.

We saw pretty good growth last year in those areas.

Sean, with regard to Barbie and increasing Barbie sales, what impact that would have on gross margins.

Obviously it would be a positive impact , but again we are continuing to face increasing cost pressures, partly offset by the modest price increase that we took.

And you know, Sean, we don't give guidance or projections as we talk about thing like first quarter sales.

I can tell you that, based on our projections, we know what we sold in and we have a good handle on POS from the top customers and what sold.

We look at that analysis and, I think, as Kevin probably mentioned in his remarks, our calculation of retail inventories for our business was down in the mid-to-high single digits last year.

I told you, I think at the end of the third quarter that was down in the double digits.

So we did see some response out of retailers to our product line, but we still finished the year below prior year.

We think our inventories are clean.

That's what we are generally hearing from retailers.

And we will just have to see how inventories are overall as it relates to toys or other products at retailers.

All right.

Thank you very much.

Thank you.

We will go next to Scott Corey (phonetic) of Credit Suisse First Boston.

Hey, guys, this is Ed Love for Scott.

I have two questions.

During the quarter how much of the increase of U.S.

Barbie sales would you contribute to the shift of business from the third quarter to the fourth quarter versus sort of market share gains from the of the brand?

They were both components we saw broadly cross our business, cross virtually all of our product lines a shift in business from third into the fourth quarter and a shift in the fourth quarter even to later in the fourth quarter.

That said we also gained share in all of our product lines at least through the data we have, October and November, and the share increase varied by segment but it was pronounced on Barbie.

Second is a product question.

What do you guys will think will be the key mile markers with tracking the progress of Barbie over the next 12 months.

I think generally folks can follow the things that we do.

You see once a quarter what our shipments are.

You can track the N. P.D. data as well as we can.

You can see what's going on at retail merchandising is taking place.

I always caution folks not to project too broadly from a handful of stores or something like that when you are mentioning shelf space or that sort of thing because it does vary dramatically even within an account.

The sorts of thing we've been talking about the last couple of years, how are we dollar in relevance of girls, how are we doing in market share and how are we doing with retailers.

Thank you.

We will go next question to Felicia Hendrix of Lehman Brothers.

Good morning, guys.

To beat a dead horse with GMs, a few questions related to that, first, with Barbie, I'm wondering do you think that you will ever be able to get back to normalized margins with Barbie?

And then also just given the consolidation that is going on at retail I'm wondering if that's just yet another point of pressure on GMs or if you think that there's a way that you are protecting yourself from that?

And just also on your SG&A goals I'm wondering are they still intact on the once you stated over the past few years or have changes in the business caused to you alter those goals?

Okay.

With regard to GMs and the impact, I think we've indicated that there has been a mix shift away from Barbie and the Fischer Price and to boys.

But with respect to moving forward content does cost more and we've been willing to make that investment regain momentum in the brands.

We expect over time to relies benefits from the results of these investments.

It's too early to the anticipate how that will play out.

We have margin targets for the company for GMs.

In 2003 2003 we are at 49 percent for the year which is up over 300 basis points over the last three years.

This year our GMs are 47.2 percent but we believe with Mattel moving in the right direction that this is going to be a relatively good margin business as compared to low rent consumer product companies.

With regard to SG&A and our goals, we think it's possible to achieve benchmark SG&A goals of seventeen to eighteen percent while the financial realignment plan and other initiatives are generating sales for the company these sales have being offset by cost pressures.

If you look at an annual basis we've been running a bit over 20 percent of net sales and it's been fairly consistent for different reasons as thing have not been going well in a particular ware or another in any year lower ends consumer goods companies are lower than that and our goal is to get there by continuing to tighten thing up through continuing improvement initiatives and we are working on several of these opportunities for improvement.

We are aggressively executing our IT strategy which will enable additional opportunities to drive efficiencies and productivity improvements.

We are doing thing like rolling out on line tools for the sales force, designed to to be a value-added partner to our retail customers.

We are continuing to streamline our backs office function by completing Europe in mid 2005 and beginning Latin America in mid 2005.

We continue to implement global procurement across all facets of the company and we continue to explore opportunities to optimize manufacturing and sourcing in Europe and the feet far easement over time we think these goals are achievable for GMs and for SG&A.

One follow up, when either about your action figures, certainly Barbie gets the best margins but when I think about your action figures should we think about high margins there as well?

Yes, generally speaking.

One way to think about action figures is they are dollar like products from a manufacturing and margin standpoint for boys.

Glad you said it.

I didn't want to.

Dolls for boys.

Okay.

Doll-like products for boys.

Next question, Margaret Whitfield for Ryan Beck.

Could you give color for some of the washes that are performed well for you in the quarter and if you could dis[inaudible] I've seen the it's the first time you brought a content based product in the spring season Juan that for tells.

Also for the first time in sometime the international market performed less well than the U.S., I wonder if you could tell me what's going on there how their retail was specifically and how major brands performed?

I guess Barbie did relatively well but not as strong as in the U.S. what the outlook might be.

Well, let me start, Margaret, when you talk about the Barbie products, princess be the palmer did well.

It wasn't as strong as swan lake in the prior year but stronger than wrap pun sell from a couple years earlier.

Fashion Fever has done quite well.

The prime that and fashion styling head which was new to the line did well and generally thing in what we coin the World's of have done well in including fairy taupe, yes, and we have high expectation for fairy taupe, es, because we are doing our first spring entertainment associated with that.

In terms of the international, Bob?

I'm sorry, I forgot about financial Europe was sluggish all year for us.

We held our own.

We gained market share in fashion dollars in every market but one in the U.K.

And even there there was a lot of hospital but we prevailed in the end.

Barbie is the number one brand of toys in the U.K., number one brand of fashion dolls.

We did well in boys, infant, preschool.

But retailers were reluctant to by that heavily following what I would say was a tepid Chris of '03 and Christmas '04 was pretty lackluster at retail as well.

We think our inventories are clean in Europe, again based on our calculations of sell in and sell through.

Outside of Europe the business continues to grow nicely.

Both Latin America and Asia grew for us in double-digit rates.

And in retail what is your assessment of the consolidation in the U.S. market and your chance of developing new channels in the U.S. market for retail?

Well, we have seen the toy business further concentrate at retail over the years.

We have focused on the growing retailers and developing new channels, at least for our products.

And as I mentioned earlier we saw nice growth in what we call our alternate channel business.

Any that you care to name that fell into the top ten?

No, I don't feel like naming names today on customers.

But generally speaking as you go to different stores particularly in the food and drug channel you will see that we have increased our presence in there quite dramatically over the past couple of years.

Thank you.

Thanks, Margaret.

Once again, [Caller Instructions].

We will take our next question from Tony Gikas of Piper Jaffray.

Good morning.

Nice finish to the year end.

A couple of questions for you.

On the Barbie line, will we see the entire product strategy rolled out in 2005?

I think there was about a third of the product line that we were expecting in calendar '05.

Will this result or should we look at this as an increase in shelf space?

And is this part of your overall pricing strategy to take pricing up?

And then I have a couple of follow-ups.

Well, Tony, I don't know that we are ever going to get to 100% of our product line in Barbie matching one of the world's but clearly we are over two-thirds today when you look at the shelf.

And that number will be stable or increase a bit over time.

So the product line is playing out about as we expected.

When we talk about shelf space we don't like to get into specifics about shelf space because it does vary by customer and by brands and by location.

That said and given the challenges we've experienced in keeping in mind the decisions about shelf space being made as I've talked before sort of in hindsight based on historical trends by retailers, we are of course hopeful that when retailers see the magnitude that we are outselling the competition that the shelf space in fashion dollars would turn in our favor.

Then a couple quick follow-ups.

Retail buying patterns continued to tighten.

Is this something we expect to see for the next couple of years or when does that level off?

And then the next question would be in the learning category, how much growth do you see in that category in the U.S. over the next couple of years?

Is that still a double-digit growth category?

Well, let me start with the retail buying at a time persons.

I'm not sure they ever changed.

My view of this has always been folks like less inventory, not more, and if they can by closer to consumer take away they will do so.

I think we did get to the point this year where clearly based on the pattern of our shipments that retailers broadly speaking must have gotten to the point where they needed some more goods in their judgment to get through the holidays.

Because our reorder rate was fairly strong this fourth quarter.

So I don't know that there is ever a finish line when it comes to reducing inventory.

I have always said that inventory is cash in the form of a depreciating asset, whether it's our inventory or retailers inventory or suppliers inventories, I think people are going to continue to try and tighten them down as best they can.

As it rye later to the learning category we all talk about projections for specific categories within the toy business but I can tell you that we saw strong sales growth for Fisher-Price brands we were 10% in the fourth quarter and any other percent for the year.

We gained significant market share in infant and preschool broadly and within the learning segments within there and it accelerated into the October, November period.

Our strategy continued to be and have multiple platforms driven by age segmentation and innovation.

And I think they will continue to be sort of a gray area between What's a learning toy and what isn't.

We define learning toys more broadly than electronic learning aids and things like lap in learn which have having little electronics then did very well for us.

So we like the consumer insights behind making toys more learning or educational friendly for mom's and their kids.

And I think we will continue to make good progress in the category.

Okay. thank, guys.

We will go next to Tim Conder of A.G. Edwards.

Congratulations on a strong wrap up to the year.

A couple of items here.

It sounds like with the late reorders and everything that the markdowns could have been less year over year and you're sharing in that. could you give us a little bit of an update there, housekeeping item tells where you stands with your reshare purchase?

And revisit the line of questioning.

Just conceptually remind us what areas you are focused on for potential acquisitions?

Well, Tim, this is Bob.

Let me start.

As it rye later to retail inventories we don't talk about markdowns or specific line items but I can tell you that our calculations of retail inventories show that they are down year over year.

We haven't had a mark down problem since I've been here and our retail inventories continue to decline.

So I think that's probably the most relevant comment I can make in the.

As it in there.

As it relates to acquisition, we will look at the right thing at the right time at the right price.

What's the right thing?

It has to be consistent with the company's vision that we stated in August of 2000, that is world's premiere toy brands for today and tomorrow.

And as it relates to share repurchase, we have essentially completed the last $250 million trench that was board approved.

It's a board level decision.

I do try to caution investors not to draw conclusions based on the timing or magnitude of individual authorizations.

There are three keys as we think broadly about capital deployment and specifically about share repurchases.

Number one, we are not going to get ahead of ourselves.

Number, two we are going to be disciplined.

And number three, we are going to be opportunistic.

Okay.

Thank you.

Operator, we will take one more question.

Thank you.

We will take our last question from Linda Bolton Weiser from Oppenheimer.

Thanks.

Just on advertising and promotion expenditure.

I know you have been studying the effectiveness of your spending dollars.

What's your thought on that?

The ratio was down against a very high level in the prior year quarter.

What are you thinking for '05 on that ratio?

Well, Linda, you know we don't give guidance but let me just talk broader to the try and answer your question.

Our advertising expense was up quite a bit in 2003 and as we told you going through 200,094 we expect it to be similar and I would focus on the full year as opposed to some quarterly number.

Our advertising expense was, in terms of pure dollars, was about the same and it was down just a touch on a percent of sales basis.

If you look at over the last couple of years it's been up a little bit.

So I would say in general we are adding more sign to say looking at the performance of our advertising.

We continue to try and improve and modify it.

Going forward I guess I won anticipate a dramatic change one way or the other.

We will spend more on advertising when we see something that's working but we also try and spend less in other brands when we sea copy that isn't as effective.

Okay.

Great.

Thanks.

Thanks, Linda.

That does conclude the question and answer session today.

At this time, Ms. Douglas, I will turn the conference back over to you for any additional or closing remarks.

Thank, operator.

I would like to thank all of you for participating in today's call.

The replay of the call will be available beginning at noon eastern time today and the number for the replay is (719)457-0820 and the I.D. number is 989,174.

Thank you.

Thank you for your participation.

That does conclude today's conference.

You may disconnect at this time.