MATTEL INC /DE/ (MAT) Q2 2026 Earnings Call Transcript

Thank you for standing by, and welcome to the Mattel, Inc. Second Quarter 2026 Earnings Conference Call. I would now like to turn the call over to Katina Metzidakis, Mattel's Head of Investor Relations. Katina, please go ahead.

Thank you, operator, and good afternoon, everyone. Joining me today are Ynon Kreiz, Mattel's Chairman and Chief Executive Officer; Paul Ruh, Mattel's Chief Financial Officer; and Roberto Stanichi, Mattel's President, Chief Marketing and Global Brand Officer. This afternoon, we reported Mattel's second quarter 2026 financial results. We will begin today's call with Ynon and Paul providing commentary on our results, after which we will provide some time for questions. Today's discussion, earnings release and slide presentation may reference certain non-GAAP financial measures and key performance indicators, which are defined in the slide presentation and earnings release appendices. Please note that gross billings figures referenced on this call will be stated in constant currency unless otherwise stated. Our earnings release, slide presentation and supplemental non-GAAP information can be accessed through the Investors section of our corporate website, corporate.mattel.com, and the information required by Regulation G regarding non-GAAP financial measures as well as information regarding our key performance indicators is included in those documents. The financial results included in the earnings release and slide presentation are preliminary until Mattel's Form 10-Q is filed with the SEC and actual results when disclosed in the Form 10-Q may differ from these preliminary results. Before we begin, I'd like to remind you that certain statements made during the call may include forward-looking statements related to the future performance of our business, brands, categories and product lines. Any statements we make about the future are, by their nature, uncertain. These statements are based on currently available information and assumptions, and they are subject to a number of significant risks and uncertainties that could cause our actual results to differ from those projected in the forward-looking statements. We describe some of these uncertainties in the Risk Factors section of our latest Form 10-K annual report, our Form 10-Q quarterly reports, our most recent earnings release and slide presentation and other filings we make with the SEC from time to time as well as in other public statements. Mattel does not update forward-looking statements and expressly disclaims any obligation to do so, except as required by law. Now I'd like to turn the call over to Ynon.

Good afternoon, and thank you for joining our second quarter 2026 earnings call. We continue to execute our strategy to grow our IP-driven play and family entertainment business with multiple proof points across toys, digital and film. Mattel achieved strong growth in net sales of 10% as reported and 9% in constant currency with a double-digit increase in North America. Growth was driven by both owned and partner IP and digital games following the full acquisition of Mattel163. Mattel was number one globally in its three categories, Dolls, Vehicles, Infant, Toddler, and Preschool and gained share in Vehicles and Action Figures per Circana. We continue to execute our capital allocation priorities, including investing in organic growth and buying back our shares, all while maintaining a strong balance sheet. As we have discussed, the investments in organic growth are designed to accelerate top and bottom line and capture even more value from our IP faster. Examples include self-published mobile games, building sets, trading cards, D2C, first-party data and technology and infrastructure. These investments are progressing well, and we continue to expect that in aggregate, they will have high ROI with a net positive contribution to the bottom line in 2027 and beyond. Top-line growth has continued in the third quarter to date with positive POS year-to-date. We believe we are well positioned for the back half of 2026 and are reiterating our full year 2026 guidance. As it relates to the global toy industry, it grew strongly in the first half, and we expect it to grow for the full year with a toyetic theatrical slate and continued expansion of adult consumers. Looking at our category performance, we are seeing the benefit of our diverse portfolio and a complementary combination of owned and partner brands, which are managed as part of our brand-centric operating model. Growth was driven by Vehicles and Challenger categories collectively. Within Vehicles, Hot Wheels had another outstanding quarter, growing 12%, supported by continued strength across both kids and adult collectors. Our collectible diecast business continues to perform exceptionally well, demonstrating the expanding appeal of the brand. Within the Challenger categories, growth was driven by games led by UNO, including the contribution of Mattel163 as well as Action Figures, including Toy Story 5 and Masters of the Universe. Dolls declined primarily due to lower revenue from streaming content for Barbie as well as Polly Pocket, partially offset by growth in K-Pop Demon Hunters and Disney Princess and Frozen. We continue to expect Barbie trends to improve in the back half of 2026, driven by new content, including the Barbie Nutcracker animated special, along with product launches such as the new Barbie Dreamhouse. We continue to expect Barbie to return to growth in 2027. Infant, Toddler, and Preschool declined primarily due to Fisher-Price. Within Fisher-Price, Little People continued its strong momentum, growing high double digits, supported by new partnerships, including Nintendo and continued strength in its core offerings. Little People is demonstrating potential to become an increasingly meaningful growth driver. As we shared before, we are actively assessing our Infant, Toddler, Preschool business to ensure it is best positioned to achieve its full potential. At the same time, we continue to focus on profitability and optimize the product lines. We are also making strong progress in digital games and film. In digital games, the integration of Mattel163, which we fully acquired in the first quarter, is progressing well, and we are leveraging our combined capabilities as we look to expand our pipeline of future games. In addition, we launched our first self-published mobile game based on Masters of the Universe, establishing our publishing and digital customer acquisition capabilities. Our second self-published mobile game, UNO Wild, is in soft launch. The game has hit all its production milestones to date, and we are encouraged with the early progress. We are gearing up for a full global commercial launch in early 2027. As the number one traditional card game in the world, we have a unique opportunity to extend UNO's resonance beyond the physical format and deepen consumer engagement through mobile games. UNO Wild will expand the universe of UNO mobile games currently offered by Mattel163. We also recently announced two new licensed PC and console titles based on Hot Wheels and Barbie, which are scheduled for release later this year. In film, Masters of the Universe was released in theaters globally and just recently launched on Amazon's Prime Video streaming service. It is now available to hundreds of millions of Amazon subscribers. In its first week, Masters of the Universe was both the number one film on Prime Video globally as well as the number one most-watched movie across all streaming platforms in the U.S. The movie has brought excitement to this iconic franchise, introducing the mythology to a new generation and deepening engagement with long-time fans. The full product line across toys, adult collectibles, apparel, publishing and digital continues to expand. Gross billings for Masters of the Universe has more than tripled year-to-date, and we expect significant growth this year as a result of the movie and for the brand to be an important action figure franchise for Mattel into the future. Our next movie, Matchbox, which we produced with Apple and Paramount Skydance, is set for release on October 9 on Apple TV, along with a strong product offering in the fourth quarter. With that, Paul will cover the financials in more detail.

Thanks, Ynon. As you just heard, we achieved strong growth in net sales with toys and entertainment each contributing meaningfully in the quarter. Consumer demand in the first half of the year was up low single digits and remains positive through Q3 year-to-date. The acquisition of Mattel163 contributed nearly $49 million in revenue and approximately $14 million in adjusted operating income during the quarter. Now that Mattel163 has been fully integrated going forward, we will not separately report these stand-alone results. Looking at gross billings by region, three of our four regions grew with North America up 12%, EMEA up 7%, Asia Pacific up 4%, while Latin America was comparable. We believe the shift in retailer ordering patterns in the U.S., which impacted U.S. gross billings for four quarters in a row, has now largely stabilized. Moving down the P&L, adjusted gross margin was 48.6%. The decline was primarily due to the negative impact of 170 basis points from the gross incremental cost of tariffs, 120 basis points from inflation, 110 basis points from higher royalties as well as 60 basis points of unfavorable foreign exchange. Going the other way, 120 basis points from the addition of Mattel163 and 80 basis points from other, including tariff mitigation actions and Optimizing for Profitable Growth savings. Advertising increased $45 million to $124 million, including expenses associated with Mattel163 and brand marketing and consumer engagement activities and theatrical releases in the quarter. Adjusted SG&A increased $38 million to $384 million, primarily due to the strategic investments as well as expenses associated with Mattel163. Adjusted operating income was $39 million as compared to $96 million in the prior year period, primarily due to higher advertising and adjusted SG&A expenses as well as lower gross margin, partly offset by higher net sales. Adjusted EBITDA was $95 million as compared to $170 million and adjusted earnings per share was $0.01 as compared to $0.21, both mostly due to the same factors that impacted adjusted operating income. Free cash flow generation on a trailing 12-month basis was $435 million as compared to $530 million in the prior year period. The difference was primarily due to lower net income, excluding the impact of noncash items and higher capital expenditures. We repurchased $100 million of shares in the quarter, bringing repurchases to $300 million year-to-date, and we are on track to reach our target of $400 million for the full year. By now, we have acquired a total of $1.5 billion since resuming share repurchases in 2023, representing a reduction in shares outstanding of approximately 23%. Turning to the balance sheet, cash at quarter end was $524 million as compared to $870 million a year ago. The decrease was primarily due to share repurchases over the last 12 months, capital expenditures and cash used for the acquisition of the remaining 50% interest in Mattel163, partially offset by operating cash flows. Total debt was comparable with the prior year. Our leverage ratio was 3x, and we remain committed to maintaining an investment-grade rating in line with our capital allocation priorities. Owned inventory at quarter end was $830 million, a slight decrease versus prior year. Retailer inventories declined low double digits compared to the prior year, and we believe we are well positioned overall for the second half of the year. As part of our Optimizing for Profitable Growth program, we achieved savings of $15 million in the quarter, bringing the cumulative total savings since launching the program in 2024 to $205 million. We continue to target approximately $50 million of efficiencies this year or a program total of $225 million between 2024 and 2026. As Ynon said, we are reiterating our full year guidance for 2026, which includes net sales growth of 3% to 6% in constant currency, adjusted gross margin of approximately 50%, adjusted operating income of $580 million to $630 million and adjusted EPS in the range of $1.27 and $1.39. In terms of 2026 gross billings performance by category, we continue to expect Vehicles as well as Challenger categories combined to grow strongly, Dolls to be comparable and ITPS to decline. This includes the following drivers: momentum in key brands, including Hot Wheels, Mattel Brick Shop, UNO, Little People and Masters of the Universe, the Matchbox film, products for major theatrical releases, including Disney and Pixar's Toy Story 5, significant partnerships, including K-Pop Demon Hunters and DC and the contribution of digital games following the full acquisition and consolidation of Mattel163. FX is expected to have an approximate 1% benefit on full year net sales based on current spot rates. Gross margin is expected to improve in the second half. We do not expect a rebuild of the heavy promotional activities that occurred at the end of 2025. And while we are seeing some moderate inflationary pressures associated with events in the Middle East, we expect to mitigate them and achieve our full year guidance. The strategic investments of $110 million this year to accelerate growth and capture even more value from our IP faster are progressing well. We now plan to deploy the majority of the $40 million of digital performance marketing investments to coincide with the commercial launch of UNO Wild in 2027. This is not expected to impact our full year guidance for 2026. Our guidance always includes a range of assumptions and scenarios. As a reminder, interest expense this year is higher as compared to 2025 following our debt refinancing last year, while interest income is lower due to the lower cash on the balance sheet. As we have shared previously, given the uncertainty around tariff refunds, our guidance does not currently include any material related benefit. I will now turn it back to Ynon for some concluding remarks.

Thanks, Paul. In summary, this quarter, we made important strides in our strategy to grow our IP-driven play and family entertainment business and achieved strong growth in top line. Growth has continued in the third quarter, and we expect to achieve our full year 2026 guidance. Our world-class brand portfolio and product offering, driven by our brand-centric operating model and global capabilities position us well for the second half of the year. Before we begin Q&A, I'd like to congratulate Roberto Stanichi, who has been promoted to President, Chief Marketing and Brand Officer of Mattel. As the leader of our global brand team, Roberto will be joining our earnings calls to provide additional perspective on our brand-centric strategy, portfolio and performance across categories. I'll now pass it back to the operator.

Your first question comes from the line of Arpine Kocharyan with UBS.

I wanted to start with your full year guide revenue maybe slightly better for the quarter, understandable why full year guide is unchanged given so much of volume is still ahead of you. But then on margin, mostly, again, consistent with what you said you will do in Q1 for Q2, that does imply back half needs to be up above 50% in gross margin. Is that pretty much unchanged as you look for the back half? There has been so much volatility in crude and investors are just really focused on input costs and what that means for the back half? And then I have a quick follow-up.

Good. Thank you for the question, Arpine. Good to talk to you. As you well said, we just reiterated guidance, and let me start with the top line. We achieved a strong quarter and also a first half that was broadly in line with our expectations. And there remains a full half of the year ahead where we typically sell two-thirds of the normal volume for the full year. It's important to note that our guidance continues to reflect a range of scenarios and assumptions around consumer, macro and inflation. So that's what is related to the top line. In terms of margin assumptions, which is the second part, we are also confirming our guidance of approximately 50% in terms of gross margin. For the balance of the year, we are expecting to improve sequentially for the second half. And we do not foresee any of the promotional activities that we saw at the end of 2025 and also the inclusion of Mattel163. So those are the factors that will allow us to deliver on the margin guidance. There's also puts and takes in the bottom line, but they are all within the guidance range and opportunities that we have. We are monitoring clearly the events of the Middle East, and we have a set of plans and assumptions to be able to mitigate those impacts and achieve our full year guidance. Looking forward, our expectation is that the full benefit of the incremental investments. Remember, 2026 is an investment year that will deliver benefits and fruits in 2027 with an accelerated top and bottom line and those expectations for 2027 and beyond remain.

Great. That's very helpful. And then I don't know if Roberto is on the call today or if he's willing to take questions. But just wondering if we can hear a little bit more on his recent promotion to President and Chief Brand Officer. We all know how good his leadership has been on brands like Hot Wheels. But what does this management change mean for brands like Barbie? How he thinks about sort of the strategy there and kind of your overall view on where the most profitable brand you have in the portfolio is headed for the back half and for next year?

Thanks, Arpine. I'll take it first just to talk about Roberto's promotion, and then he will answer your question on Barbie. So first of all, Roberto's promotion is really about implementing our brand-centric operating model. This is about bringing together two concepts. First is to manage our brands holistically to capture the full value of our IP and create closer alignment between toys and entertainment, including content, digital, consumer products and experiences. The second is to orient demand creation around fans and fandom and to nurture deep emotional connections with our brands across multiple touch points. The promotion reflects the importance of our global brand organization to Mattel's business and recognizes the significant progress Roberto has been establishing and driving to implement the model. He's been instrumental in leading Mattel through this evolution. And the promotion is indicative of the Board's confidence in Roberto's leadership and supporting continued development as the company continues to execute its long-term strategy. So a lot on Roberto's plate, and I'll let him take the question on Barbie.

Thank you, Ynon, and thank you, Arpine, for the question and everyone for welcoming me into the call. I'm looking forward to working more closely with you all. So yes, absolutely, let's talk about Barbie because this is one of our key priorities. And we want to take a few minutes because it really deserves a fulsome answer, and I want to put it into the context of our brand-centric operating model. So Barbie is obviously an icon and the number one doll in the industry and has been for the past five years. And we have a new operating model, a new organization and a clear plan that is going to define this new chapter for Barbie. And giving you a little bit more detail, if you look at the back half of 2026, we do expect the trends to improve, and that's driven essentially by three main tenets. First one is that we're significantly increasing our investment in content. So we're going to be doubling the amount of YouTube content that we're launching. We're rereleasing seven classic full-length Barbie animated specials on the platform, and we're launching a brand-new Barbie and the Nutcracker animated special that is going to be tied to the holidays. So put it all together, we're significantly increasing the amount of content that is going to be available for Barbie and our core fans in the back half of the year. On the product side, we do have some exciting new launches, the most important one being the new Barbie Dreamhouse. And what's exciting is that with our brand-centric methodology, this is not going to be simply a product launch, but a whole brand campaign that we're calling Barbie's Moving and it will come to life not just in toys but with brand partnerships, retail executions and even consumer products. And the last thing to highlight is new packaging. So in the second half of 2026, we're rolling out a new packaging segmentation that is going to make Barbie products a lot easier to shop and increase the appeal on shelf. So when you put all of those things together and many more other initiatives, we do expect those trends to start to improve, and then for Barbie to return to growth in 2027. When we look at that year, we believe that will be driven by even more content. We have another animated special coming in 2027, and we're going to be relaunching six more classic Barbie animated movies. From a product line standpoint, we're looking to solidify Barbie's place as a fashion icon. So you're going to see enhanced product value with more detailed fashions, accessories, better style that we believe is going to increase appeal on shelf. And then last but not least, we're looking to accelerate our growth with our adult fan audience, and that's going to come to life through new partnerships and collections. As a company, we do know how to tap into our adult fans. You look at Hot Wheels, you look at UNO, Monster High, these are all brands that have significant business driven by adult fans and even Barbie herself. So we're just looking to accelerate that even more. If you take a step back, much of this Barbie approach is based on the Hot Wheels methodology that we've been applying for many years. And you know that Hot Wheels has been an absolute runner for us in the past few years. It's been our largest brand since 2024. That business is approaching $2 billion for Mattel, and we believe that we can keep that momentum going for many years to come. So overall, it's an exciting time for Barbie as we see our brand-centric model being applied, and we're confident she will return to grow in 2027.

Your next question comes from the line of Anthony Bonadio with Wells Fargo.

I guess to start, just a clarification. Can you just talk a little bit more about the shift of that $40 million in user acquisition spending in 2027? Just what drove that decision as it pertains to guidance, if that expense is shifting, does that imply your core is actually coming down by that much? Just any additional color there would be helpful. And just on the action figures and building sets line item, it seems like that was a lot stronger than people had modeled even after accounting for the Mattel163 benefit. So can you just talk a little bit more about what's driving the growth there? And just anything about how to think about momentum in the back half?

Yes. Thanks for the question, Anthony. We now plan to deploy the majority of the $40 million of digital performance marketing investments to coincide with the commercial launch of UNO Wild in 2027. This is not expected to impact our full year guidance for 2026 because our guidance always includes a range of assumptions and scenarios. And when we launch UNO with the full user acquisition investment, it's because we have a high confidence and expect a high return on our investments. As we said several times before, the investments can be modulated and it's a very process-driven, data-driven process with clear metrics that we're tying the investments to. So that's how we are modulating the investments and making sure they get the highest return. And we do believe that it will not impact our guidance in 2026, and we continue to stand by a 2027 guidance or outlook.

Yes. Thank you, Anthony. So from an Action Figures perspective, it was really a highlight in the quarter, and we benefited from the theatrical releases, from Toy Story 5 and Masters of the Universe as well as really strong WWE performance and early shipments for our new DC partnerships. We have one of the best action figure portfolios in the industry. We have multiple IP that are performing across different consumer and fan demographics. Normally, we refer to Action Figures as part of our Challenger categories, but Mattel is really becoming a market leader. I think we had a great proof point in this quarter. Mattel is actually the number one manufacturer in action figures for the month of June according to Circana. This is a very attractive category for us because it caters to that adult audience, and we feel that there's significant opportunity for Mattel. I also want to highlight that the quality of our products is really unmatched, and it delivers incredible price value. This is one of the key reasons why we have the privilege of working with some of the best licenses in the business and it has allowed us to continue to position Mattel as a partner of choice for major theatrical releases, so we can leverage our scale, our capabilities and strong retail partnerships. For 2026, Masters of the Universe and that theatrical release brought a ton of excitement to this iconic franchise. It helped us to introduce the mythology to a whole new generation and deepen engagement with long-time fans. We've seen gross billings for Masters of the Universe more than tripling year-to-date, and we expect significant growth as a result of the movie and the entire ecosystem that it generated. When it comes to building sets, we're also very excited about that category. It's one of the fastest-growing drivers for the toy industry right now. We have Mattel Brick Shop Hot Wheels that launched last year. It performed really well, and we look forward to continuing to expand it through 2027. It's been an incredible hit for us. It's an incredibly unique product line because it shows the commitment to automotive authenticity and innovation in the use of materials and fans are absolutely loving that. So again, successful introduction. It's yet another proof point of the strength of Hot Wheels, but really opening up opportunities for us in a new category that is very attractive.

Your next question comes from the line of Eric Handler with ROTH Capital.

I wonder if you could talk a little bit about the Masters of the Universe franchise and brand. Unfortunately, the movie didn't perform as well as hoped for in theaters, maybe it has better success in home entertainment. But now that this is passed, how are you thinking about the next couple of years for Masters of the Universe? Also, if we could talk a little bit about Hot Wheels. The last three quarters, it's been up mid- to high teens, a little bit 20% in the fourth quarter. What is it specifically — I don't believe that Brick Shop is part of the Hot Wheels segment line. Where is it that you continue just to see incremental growth of Hot Wheels?

Thank you, Eric. As you said, the movie was released in theaters globally, and as you know, it just recently launched on Amazon Prime Video streaming service. So it is now available to hundreds of millions of Amazon subscribers. In the first week, the movie was both the number one film on Amazon Prime Video globally as well as the number one most-watched movie across all streaming platforms in the U.S. So very strong reception. As Roberto noted, the Masters of the Universe brand overall has more than tripled year-to-date. For the most part, this is driven by the movie halo, the energy and excitement and drive that the movie brought to the brand. When we look at the success of the movie, box office is just one aspect. We're looking at it in terms of the overall impact on the franchise and what the movie did for Masters of the Universe overall. As a result of the movie, we expect Masters of the Universe to become an important action figure franchise for Mattel into the future. When you take a step back and you look at what's happened to this brand that was, for the most part, not commercialized for more than 40 years and how we brought it back into current culture with all of the awareness and excitement and a new generation of fans, we're very happy with where it is. This will be an important driver for the company in 2026 and beyond. This is part of the flywheel. We've always said that not every movie will be the next Barbie. But we also said that you don't need a movie to be that successful as Barbie to have real economic impact on the company because we own the IP, we own the underlying rights in all categories for the IP. All we need is to ignite and delight fans and then we capture value across multiple verticals. This is exactly the flywheel and the brand-centric operating model that we've been implementing.

Yes. The Brick Shop number is not part of the Hot Wheels line, so that's even more upside. Hot Wheels was up double digits again, and it continues to show widespread strength in the portfolio. It was the number one vehicle property globally, and we continue to gain market share in the first half. It's the clearest example of our brand-centric strategy. We had clear audience segmentation and the success is really driven by more than toys because Hot Wheels has evolved to become about car culture and lifestyle. As I mentioned before, it's our biggest brand since 2024, and it's approaching $2 billion. We see a lot of headroom in the category. We see strength with adult fans, which is a growing audience, and the expansion of that fan ecosystem beyond traditional vehicle categories and into building sets and consumer products, experiences, digital gaming and content. We still see that there is a ton of headroom in vehicles itself, and we believe that if we can establish Hot Wheels as the defining player in vehicles as a play pattern, we can continue to gain significant share. Hot Wheels is a brand that we're continuing to invest in, and we expect it to grow for years to come.

Your next question comes from the line of Christopher Horvers with JPMorgan.

So my question is I wanted to get an update on the outlook for tariffs. There's been a number of other companies across U.S. consumer that have given an outlook for expected tariff refunds, how they might account for it and sort of what use of proceeds is going to be. So I just want to get your thoughts there. How do you think about including it in operating income? Do you think there's a need to perhaps invest in price and lean in as we get into the holiday season? Or I guess, alternatively, do you think any prior period numbers, do you think you might back out? So I want to get your current thoughts around that.

Yes. Thanks, Chris. We're, of course, actively engaged in the refund process, and we're working through the system. As you know, the overall framework continues to evolve. Accordingly, the timing and the amount of such potential refunds remains uncertain. I want to stress this point that our guidance does not include any potential impact of tariff refunds. So we're not projecting a specific refund amount, and we will continue to evaluate and consider the use of the refunds when they are received. I'm sure we're already thinking about it. So if and when we receive those, we will communicate such uses of tariff refunds.

Understood. And then as you think about the lift that you're seeing in gross margin from Mattel163, how is that coming in relative to your expectations when you made the acquisition? And perhaps was there any upside there relative to your plan in light of how you're thinking about offsetting some of that oil and resin pressure potentially in the back half? Is that one of those sources of funds?

Yes. The acquisition of Mattel163 is performing in line with our expectations, both in terms of the top line and the bottom line. So the contribution to our margin enhancement is exactly what we expected it to do. We continue to foresee that that will be the case for the balance of the year. Remember that Mattel163 is one of the factors, but we will also have additional ones like Optimizing for Profitable Growth savings and other factors, including, for example, lower discounts that give us confidence to reiterate our margin guidance. Mattel163 is one of the contributors.

Your next question comes from the line of Jim Chartier at Monness, Crespi, Hardt.

Earlier, you said Little People could be positioned to become a more meaningful growth driver for the company. Can you just talk more about that, what your plans are for Little People? And what gives you the confidence that that could be a much more meaningful brand for you? And on Thomas & Friends, the brand has been relaunched multiple times. What gives you the confidence that this time could lead to more durable growth for the business?

Jim, yes. Little People has been a standout within the Fisher-Price category. We believe that the form factor and the styling is so unique and the brand has cross-generational appeal. When you put those two things together, you can really create a special product that has broad appeal. It's been a runner for us in 2026. We're seeing strong double-digit POS results year-to-date, and that's driven by strong partnerships like Nintendo Super Mario execution, Toy Story execution, Disney Princess, Frozen, Mickey Mouse and also some of our core offerings. We believe this is a brand that shows tremendous growth opportunity in the future. On the ITPS portfolio, another brand worth calling out is Thomas & Friends, which we will be relaunching in the second half of this year. It's a new interpretation of that classic character. We're going to anchor that relaunch with premium animated content, new product lines and branding. Those two initiatives within the Preschool side of the house are very exciting for us to see. Regarding Thomas & Friends specifically, the team has done a tremendous job finding the right line between keeping the classic elements of the character so it continues to have multigenerational appeal, but updating it to today's moment. We're embedding storylines that resonate with parents' concerns today, such as decelerating a bit to address overstimulation. We feel there's a unique positioning for the brand that maintains the classic with a modern twist. We're anchoring the line on a successful diecast formula that we know from Hot Wheels, and we have strong know-how in managing collectible appeal. It's a different approach from some prior relaunches that were bigger departures, and we believe this gives us a very good chance of reestablishing the franchise for the future.

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

You mentioned that U.S. retail ordering patterns have largely stabilized after four quarters of disruption and the inventory is down. Does that mean that we have more normalized seasonality? Or is there still a little bit of distortion that investors should keep in mind as we head into the back half?

Yes, Kylie. Let me specify exactly what we mean with the stabilization. We believe that the shift in ordering patterns in the U.S. that began last year, which shifted the mix more towards domestic versus direct import, has stabilized at the current levels. It does not mean that it will go back to what it was pre the tariff disruption. Going forward, that mix will approximately remain the same. The second point is related to timing for the fall resets. Traditionally, the fall resets happened in August. Last year, there were some delays. Now we are seeing the return to the normal time frame, so August. So both of those elements are either going back to traditional ways of doing things or stabilized. That means there is less uncertainty. In addition, retailer inventory levels as well as ours are at lower levels compared to last year, which is a positive signal for replenishment as we move into the second half of the year.

Your next question comes from the line of Gerrick Johnson with Seaport Research Partners.

Paul, can you just go over the ad expense in the quarter, maybe break it out how much of that was Mattel163, how much maybe for Skeletor and how much for toys?

Yes, Gerrick. The increase in advertising was $45 million more than last year, up to $124 million. That included expenses associated with Mattel163, but also increased brand marketing and consumer engagement associated with the theatrical releases that happened in the quarter, and other brand activities. We do not necessarily provide a detailed breakout for advertising by specific initiative. We reiterated our overall guidance within the expectations for adjusted operating income, and the advertising increase is part of our holistic investment in our brands and the acceleration that we expect for 2027 and beyond.

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

Maybe a math question. We can all do the first half, second half math surrounding what you've done year-to-date and what your full year guidance is. Any color you can give us on the phasing between Q3 and Q4, particularly on the gross margin side? I think you just made the point that Q3 should have an easy comparison as the resets return to August versus later in the year last year. And then, related, the $40 million shift, I'm still struggling with that a little bit from Anthony's question. Is it easier to hit that gross margin number now that that $40 million is mostly moving into next year? And if so, I'm assuming that would come from Q4 and go into next year, but any help with how to think about that would be great. Also, going back to earlier comments on the portfolio, it seems like a big deal if you're confident that Barbie will ultimately grow next year. I don't know if that extends to the broader Dolls segment. But clearly, what's happened in the last couple years is Dolls would be down and Vehicles would be up, then those two things would cancel each other out in many ways. It doesn't sound like you're any less bullish on Hot Wheels. I don't know if it can continue to be a double-digit grower. But as we stitch some of these things together, you've got digital acquisitions that should begin to pay off. UNO is a big one. Any initial thoughts on how to think about the top line opportunity for 2027, given a number of tailwinds heading into next year?

Let me give you a more holistic answer on the cadence. We don't guide by quarter, and we manage on a full year basis, but there are a few standouts to consider. Remember last year toward year-end we had heavy promotional activity, which we do not expect to rebuild this year. As to the user acquisition investments for UNO Wild, we always expected the full P&L impact to be in 2027. In 2025 and 2026, we had some top-line benefit but it was partially offset or mostly offset by incremental investments in user acquisition. That's why you don't see the full P&L impact this year, and we continue to see the full impact in 2027. Mattel163 is another factor that drives both margin enhancement and incremental top line. All of that combined substantiates our 2026 guidance and our outlook for 2027.

James, thank you for the question. As we've said before, 2027 is shaping up to be a big year for the company. 2026 is an investment year where we still expect to grow top line, but clearly, bottom line is impacted by the investments. 2027 is going to be a big year. We expect continued growth in Vehicles. Barbie returning to growth will be an important driver. Infant, Toddler, Preschool will be a much lesser drag. We still need to do some work there but it will be a much lesser drag. The Challenger categories between Action Figures, Building Sets driven by Mattel Brick Shop and games driven by UNO will all be important drivers. Add to that our organic growth with our own brands plus additions to our offering including Teenage Mutant Ninja Turtles and Frozen 3, then by next year we will have four self-published mobile games in the market. K-Pop Demon Hunters will be in a full year in the marketplace. The investments we're making this year, which are impacting profitability, are intended to become net positive and drive significant growth for the company. I also forgot to mention DC as well, which will be a full year of execution next year. So 2027 is expected to be a big year. We have said already that we expect to see mid- to high single-digit growth in top line and strong double-digit growth in bottom line. We'll provide much more detail when we give full year guidance, but sitting here today, we expect a big year in 2027 and beyond. To be clear, we're not stopping there. This is the beginning of what we believe will be a strong growth period for the company.

Your next question comes from the line of Xian Siew with BNP Paribas.

You recently launched your new mobile app, the Skeletor mobile game. Could you share initial learnings from the game and how it can influence or inform future launches?

Yes, sure. This was the first self-published mobile game that we put out in the market. It was a low-risk, low single-digit investment and was mostly about establishing our capabilities, testing the technology stack and the publishing capabilities that we're putting together in advance of the bigger releases that are coming. We achieved exactly what we wanted, and it was part of our franchise approach to support and be released in tandem with the Masters of the Universe movie, and we did exactly that on time and as planned. What's exciting is to see how UNO Wild is shaping up. The game is currently in soft launch. It hit all of its production milestones to date and we are encouraged with the early progress. The plan is to release the game commercially, globally at the start of 2027. We know UNO is a strong brand with a huge following. People are proactively looking for opportunities to engage with this brand. We're making a great game, we're monitoring early metrics, and we'll invest in user acquisition when we have high confidence in the game's performance. We're optimistic, but it is still early and we'll need to see the commercial launch to fully assess performance.

Your final question comes from the line of Stephen Laszczyk with Goldman Sachs.

You called out the momentum in the broader box office this year. Could you speak to the benefits you're seeing in the toyetic film slate, what partner brands you're seeing the most benefit from? And is there any way to size perhaps the magnitude of the uplift to revenue you expect to see from the theatrical lineup stepping up this year?

Happy to take that question, Stephen. In Action Figures, we are seeing a lot of benefit from theatrical releases. This year, Toy Story 5, Masters of the Universe, our own IP as well as WWE and the early shipments of our new DC partnership are clearly boosting sales of action figures. We continue to see and expect that benefit in the balance of the year and with the slate of movie titles we have in 2027 and beyond. It's difficult to provide very specific numbers, but these are big properties and they contribute to both our top line and bottom line through product, collectibles and broader consumer products.

I'd add this is about establishing Mattel as a partner of choice with major IP owners. We treat these brands as our own, look for brands that move the market and have cultural impact, and then bring our design, supply chain, commercial and global capabilities to market. When we do that, we win, and the results are evident in many partnerships discussed today. We see these partnerships as a key growth engine for our strategy.

Ynon, I was curious how long the pipeline is of IP that potentially is out there for you to bring under Mattel. Is there IP coming up over the next couple of years that you would consider bringing in-house along those lines?

We haven't announced anything yet, and we'll continue to update you on any new developments. The key takeaway is we continue to strengthen our position as a partner of choice. The capabilities and resources we offer to big IP owners are compelling and incremental to our own-IP growth. Ultimately, it's about results, and that's what we continue to achieve.

That concludes our question-and-answer session. I will now turn the call back over to Ynon Kreiz for closing remarks.

Well, thank you. Thank you, operator, and thank you, everyone, for joining the call today. As you've heard, Mattel's second quarter performance was strong and continues to demonstrate the successful execution of our strategy with growth driven by both our own as well as partner brands and digital games, which is becoming an important part of our growth algorithm. It is good to see top-line growth continued into the third quarter to date with positive consumer demand for our product year-to-date. We are very well positioned as we head into the second half of the year. I also want to welcome our new Head of Investor Relations, Katina Metzidakis. Thank you for joining us, Katina; this is your first earnings call. Katina has already hit the ground running, and we are glad to have her perspective and leadership with us at Mattel. So welcome. Thank you, everyone, for your time. Thank you for joining the call, and we'll continue talking. Thank you.

Ladies and gentlemen, this concludes Mattel's Second Quarter 2026 Earnings Call. Thank you all for joining. You may now disconnect.