Mattel 2014 Annual Report Download - page 34

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the consolidated financial statements and the
related notes. See Item 8 “Financial Statements and Supplementary Data.”
Overview
Mattel’s vision is “creating the future of play.” Mattel’s objectives are to grow its share in the marketplace,
continue to improve its operating margins, and create long-term stockholder value. To achieve these objectives,
management has established the following strategies:
The first strategy is to deliver consistent growth by investing in its core brands, optimizing entertainment
partnerships, building new franchises, and working to expand and leverage its international footprint.
The second strategy is to optimize operating margins through sustaining gross margins of about 50% over
the long-term, and delivering on cost savings initiatives.
The third strategy is to generate significant cash flow and continue its disciplined, opportunistic, and value-
enhancing deployment.
2014 Overview
Mattel’s 2014 results were disappointing. Revenue and profitability did not meet management’s
expectations, as Mattel’s performance fell short in three areas. Mattel’s product innovation was inconsistent,
resulting in brand propositions that were not compelling enough to consumers. The doll category environment
was dynamic and challenging and, although Mattel experienced success with the Disney Princess line, it did not
drive significant overall growth in the doll category where Mattel’s doll brands make up approximately 40% of
its revenue. Additionally, global retail execution fell short of management’s expectations, especially in North
America.
Mattel’s 2014 financial highlights include the following:
• Net sales decreased 7% from $6.48 billion in 2013 to $6.02 billion in 2014.
• Gross profit as a percentage of net sales for 2014 was 49.8%, a decrease of 380 basis points from 2013.
• Operating income was $653.7 million in 2014, or 10.9% of net sales, compared to the prior year’s
operating income of $1.17 billion in 2013, or 18.0% of net sales.
• Mattel’s Operational Excellence 3.0 program resulted in gross cost savings before severance charges
and investments of approximately $119 million, or approximately $74 million in net cost savings.
• Mattel paid total annual dividends of $1.52 per share, an increase of 6% from the prior year, and
repurchased 4.9 million shares of its common stock.
2015 and Beyond
In 2015 and beyond, Mattel intends to utilize its unmatched portfolio of brands, global scale of
infrastructure, capable management team, and strong balance sheet to work towards revitalizing its business and
to deepen its connection with children and parents around the world. In addition, Mattel will launch Funding Our
Future, its next cost savings program, where it will look to simplify its global operations through structural and
process improvements and supply chain optimization.
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