Mattel CEO Ynon Kreiz: Cheaper to manufacture toys outside the U.S. even with tariffs in place

Key Concepts

• Tariffs and their impact on Mattel's financial outlook
• Supply chain diversification and reduction of reliance on China
• Mitigation strategies: supply chain diversification, product sourcing optimization, and pricing actions
• The role of US-based design and development in toy creation
• The Toy Association's advocacy for tariff exemptions
• Maintaining affordable prices for consumers

Mattel's Response to Tariffs

Financial Impact and Revised Guidance

• Mattel withdrew its financial guidance due to tariffs imposed after April 2nd.
• The stock price decreased by approximately 19% since the tariffs were announced.
• The company plans to increase prices for some products in the United States.

Mitigation Strategies

Mattel is implementing a three-pronged approach to mitigate the impact of tariffs:

1. Supply Chain Diversification: Accelerating the shift of production away from China.
2. Product Sourcing Optimization: Optimizing product sourcing and product mix.
3. Pricing Actions: Implementing price increases in the US where necessary.

Supply Chain Diversification in Detail

• Mattel has been diversifying its supply chain for seven years.
• Currently, products are sourced from owned factories and third-party vendors in seven countries.
• China's share of Mattel's production will be below 40% by the end of the year.
• No single country will account for more than 25% of production within two years.
• China currently represents less than 40% of Mattel's global production, which is less than half of the industry average.
• US imports from China represent less than 20% of Mattel's global production.
• Plans to reduce China's share to less than 15% by next year and less than 10% by 2027.
• Contingency plans are in place to accelerate the diversification if needed.

US Manufacturing vs. International Production

• A significant portion of toy creation, including design, development, product engineering, and brand management, happens in America.
• Manufacturing in other countries allows Mattel to create quality products at affordable price points.
• The company believes that production in other countries where they can be efficient and more productive is the best balance.

Advocacy for Tariff Exemptions

• 80% of global toy production happens in China.
• The Toy Association is advocating for zero tariffs on toys to ensure safe and affordable products remain accessible.
• Mattel supports the Toy Association's advocacy.

Christmas at Risk?

• Mattel is committed to the uninterrupted supply of quality products at a wide range of price points.

Q1 Performance and Outlook

• Mattel had a strong first quarter with top-line growth, gross margin expansion, and continued operational excellence.
• The company is off to a strong start in the second quarter with consumer demand up double digits.
• Mattel is maintaining its target of $600 billion of share repurchases this year.

Conclusion

Mattel is actively addressing the challenges posed by tariffs through a combination of supply chain diversification, product optimization, and strategic pricing. While the company acknowledges the potential disruption to the toy industry, it remains committed to providing quality products at affordable prices and is working to minimize the impact on consumers. The company is also actively involved in industry advocacy efforts to seek tariff exemptions.