Mattel 2004 Annual Report Download - page 34

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Polly Pocket!™and ello™. Declines in sales of Diva Starz™and What’s Her Face!™were only partially offset by
the introduction of Flavas™in 2003. Worldwide gross sales in the Wheels category were down 2% in 2003
compared to 2002, including a 3 percentage point benefit from changes in currency exchange rates. Worldwide
gross sales of the Hot Wheels®product line increased 3% compared to 2002 as a 23% increase in international
sales was partially offset by a 7% decrease in domestic sales. The international Hot Wheels®gross sales growth
included a 10 percentage point benefit from changes in currency exchange rates. Additionally, gross sales of
Matchbox®declined in both domestic and international markets. Worldwide gross sales in the Entertainment
category increased 3% in 2003 compared to 2002, including a 4 percentage point benefit from changes in
currency exchange rates. The growth in this category was driven by strong gains in games and puzzles, a solid
performance by Yu-Gi-Oh!™, and the introduction of the Warner Bros. properties Batman™and Justice
League™, partially offset by declines in sales of Harry Potter™and Max Steel™. In July 2002, Mattel and Warner
Bros. Consumer Products announced comprehensive, multi-year agreements granting Mattel master toy licenses
for several of Warner Bros.’ core franchises, including Looney Tunes™, Baby Looney Tunes™, Batman™,
Superman™and Justice League™. The agreements, which took effect in January 2003, cover all global territories
except Asia and include rights to market products based on any related theatrical releases or television programs
that are produced during the period covered by the agreements.
Worldwide gross sales of Fisher-Price Brands increased 4% to $1.8 billion in 2003 compared to 2002,
including a 2 percentage point benefit from changes in currency exchange rates. International gross sales
increased 20%, while domestic gross sales decreased 1%. The international gross sales growth included a
10 percentage point benefit from changes in currency exchange rates. Worldwide gross sales of Core
Fisher-Price®products were up 5% due to a 25% increase in international sales, partially offset by a 3% decline
in domestic sales. The growth in international gross sales of Core Fisher-Price®included a 12 percentage point
benefit from changes in currency exchange rates. Sales of Fisher-Price®Friends increased in 2003 compared to
2002 in both domestic and international markets. Additionally, Mattel benefited in 2003 from launches of
learning-related products, which include PowerTouch™and other learning toys.
Gross sales of American Girl Brands decreased 2% to $344.4 million in 2003 compared 2002. Sales
declines in Angelina Ballerina™, Bitty Baby®and the historical Kaya®doll launched in 2002 were partially
offset by strong performances in the American Girl Today®brand, driven by the launch of the Kailey®doll in
2003, as well as introduction of the Hopscotch Hill School™brand. Additionally, the American Girl Place®in
New York City, which opened in November 2003, had a strong opening holiday season and helped mitigate the
aforementioned sales declines.
Gross Profit
Gross profit, as a percentage of net sales, was 49.0% in 2003 compared to 48.3% in 2002. The gross profit
improvement was due to savings realized from the financial realignment plan and supply chain initiatives
(including global procurement initiatives designed to reduce costs) and lower royalty costs. The improvement in
gross profit was partially offset by investments in initiatives designed to drive sales momentum, such as more
open packaging to enhance value perception with consumers and packaging multiple products together at special
value prices, and higher commodity and logistics costs.
Advertising and Promotion Expenses
Advertising and promotion expenses were 12.8% of net sales in 2003, compared to 11.3% in 2002. The
increase in 2003 compared to 2002 was largely due to increased spending to support the launch of several new
product lines and Mattel’s attempt to rebuild sales volume momentum in core brands as well as the unfavorable
effect of currency exchange rate changes.
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