Mattel 2013 Annual Report Download - page 35

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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 within the low-to-
mid 50% range in the near-term and above 50% in 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.
2013 Overview
During 2013, Mattel did not meet its growth expectations, primarily due to weakness in the US market.
Mattel’s innovation and in-market execution did not resonate enough with consumers to achieve its sales goals,
and Mattel’s products and marketing programs were not strong enough to drive growth in core categories such as
dolls, infant and preschool, and vehicles.
Despite the challenging year, Mattel delivered its fourth consecutive year of sales and earnings growth.
Mattel increased its gross margins and continued to see global strength in its girls portfolio. Mattel also continued
to invest in emerging markets, such as China and Russia, which have experienced significant growth. Mattel’s
2013 financial highlights include the following:
• Net sales increased 1% to $6.48 billion in 2013 from $6.42 billion in 2012.
• Gross profit as a percentage of net sales increased to 53.6% in 2013 from 53.1% in 2012. The increase
in gross profit as a percentage of net sales was primarily due to savings from Operational Excellence
3.0 programs, favorable product mix, and price increases offset by higher input costs, partially offset
by unfavorable changes in foreign currency exchange rates.
• Operating income was $1.17 billion in 2013, or 18.0% of net sales, compared to the prior year’s
operating income of $1.02 billion in 2012, or 15.9% of net sales.
• Mattel’s Operational Excellence 3.0 program resulted in gross cost savings before severance charges
and investments of approximately $60 million, or approximately $39 million in net cost savings.
• Mattel paid total annual dividends of $1.44 per share, an increase of 16% from the prior year, and
repurchased 11.0 million shares of its common stock.
2014 and Beyond
In 2014, Mattel will focus on expanding on its product and brand innovation, improving its advertising and
promotion execution, and leveraging certain tailwinds from 2013 to help achieve its financial objectives. More
specifically, Mattel plans to expand its innovation through (i) entrance into the active-play lifestyle category,
(ii) the global roll-out of Mattel’s latest franchise, Ever After High, and (iii) new products, packaging, and
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