Good day, ladies and gentlemen and welcome to the Mattel’s Third Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to introduce your host for today's conference Mr. Martin Gilkes, Vice President, Investor Relations. Sir please begin.

Thank you, Liz and good afternoon, everyone. Joining me today are Chris Sinclair, Mattel’s Chairman and Chief Executive Officer; Richard Dickson, Mattel’s President and Chief Operating Officer; and Kevin Farr, Mattel’s Chief Financial Officer. As you know, this afternoon we reported Mattel’s third quarter 2015 financial results. We will begin today’s call with Chris, Richard and Kevin providing commentary on our results and then we will take your questions. To help guide our discussion today, we have provided you with a slide presentation. Both our earnings release and slide presentation, include non-GAAP financial measures. The information required by Regulation G regarding non-GAAP financial measures is included in these materials and both documents are available in the Investors section of our corporate website, corporate.mattel.com. Before we begin, I would like to remind you that certain statements made during the call may include forward-looking statements relating to the future performance of our overall business, brands and product lines. These statements are based on currently available information and they are subject to a number of significant risks and uncertainties that could cause our actual results to differ materially from those projected in the forward-looking statements. We describe some of these uncertainties in the Risk Factors section of our 2014 annual report on Form 10-K, our 2015 quarterly reports on Form 10-Q 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. I would now like to turn the call over to Chris.

Thank you, Martin and good afternoon, everyone. I would like to thank you for joining us today. In a few minutes Richard and Kevin will provide a lot more detail on the quarter and our outlook. I wanted to start things off today by giving you some perspective on how we're progressing broadly on our turnaround at Mattel. And then in that context, I'll review the quarter and the balance of the year. So briefly with the quarter, now clearly the results were somewhat mixed and certainly we'd have liked to had a little bit more on the top line. But absent the major impacts of weakening foreign currencies the results are just about where we expected to be. As most of you know foreign exchange continue to be a huge headwind, as currencies in many of our key markets weakened even further and depressed our overall quarterly gross sales by close to 8%. It also had a significant impact on gross margin and on operating income. But separating this out our progress was more balanced. We further were very encouraged by the progress we're making on our turnaround, our cultural transformation and our strategic priorities. Since my first call with you in January, we have been digging deep as I said we would. We've begun to make some significant progress in transforming and strengthening ourselves. And today I can quite confidently say that we are radically different and stronger company than we were just nine months ago. We've continued to reshape our culture to emphasis creativity, innovation, speed and more personal accountability. And we have substantially transformed our leadership team to help lead this change. In fact since January, we've changed out over two-thirds of our key senior leaders. We've also attracted some extremely talented new executives to help…

Thanks, Chris. As Chris just alluded to, there were three things that weighed down our third quarter financial results. A continuation of strong foreign exchange headwinds, declines in Monster High and softness in some license entertainment properties. Although we look at our business quarterly we also need to look beyond the financial headline to assess the business and when we do that, we see a lot of progress towards our turnaround and lot of reasons to believe in Mattel's long-term success. Long-term success starts with having the right people in the right places. In this past quarter we were pleased to announce four exceptional new members to our leadership team. They join Mattel with clear mandates to strengthen and build four critical opportunity areas; core brands, content and digital, brand and commercial finance and culture. Each of these leaders is a recognized innovator and already on a job contributing to Mattel's transformation. Many of the signs of a turnaround at Mattel are just below the surface, so as I take you through some of the specifics of our Q3 results, I'll go a little deeper to give you the opportunity to see what I'm seeing, which is great progress to-date and a belief that our turnaround efforts are in line with our expectations. Today with regard to performance, I'll focus on POS to show how our brand management and retail execution efforts are driving consumer demand and strengthening Mattel's retail customer base. Then I'll quickly pivot to talk about what our turnaround progress means for the upcoming holiday season and for 2016. Global POS arguably the leading indicator of our progress remains positive for the year although down slightly in Q3. Not surprising the decline in the quarter was mainly driven by Monster High and Disney Princess. But when we…

Thank you, Richard and good afternoon, everyone. As Chris said, while our overall third quarter results are about where we expected them to be, our reported sales were slightly below our expectations for the quarter due to the strengthening of the U.S. dollar versus our plan. Specifically in late August and early September, which negatively impacted sales by an incremental $50 million. The retailers bought our product later as they reduced their mix of direct import purchases, which likely shifted $30 million to $40 million of sales to the fourth quarter. Looking beyond the top line, gross margin was also significantly impacted by currency but we did make progress with our cost saving initiatives, which are helping to fund investments in the turnaround and a key reason that we believe we can deliver gross margins about 50% for full year 2015 despite the currency headwinds. With foreign exchange having a significant impact on the quarter and year-to-date, I'll provide some additional color on the currency dynamics before moving into the brand and P&L discussion. In aggregate, currency reduced reported net revenues by $150 million in the quarter and almost $300 million year-to-date. As many of you know, we have market leading positions in Mexico and Brazil where the peso and real depreciated about 20% and around 40% year-over-year in the quarter. These markets represent two of our largest countries outside the U.S. and currency volatility had a meaningfully negative impact on our reported results. We also saw the Russian ruble weaken by around 40% year-over-year in the third quarter. We expect revenues will continue to be negatively impacted by foreign exchange, but we believe the impact in the fourth quarter will be less pronounced since U.S. dollar began to strengthen in the fourth quarter of 2014. Adjusted gross margin was…

[Operator Instructions] Our first question comes from the line Sean McGowan with Oppenheimer & Company. Your line is now open.

Thank you. Lot of information there, it’s all very helpful and we appreciate the color. I wanted to start with a question on how you guys describe when -- as you guys described closing the gap between POS and shipments, I assume at some point closing the gap means positive shipments, otherwise that would be a weird relationship. So do you think there is a possibility that at least Barbie and Fisher-Price could actually see increased shipments in local currencies in the fourth quarter?

Sean it's Chris. Let me take a stab at that. Actually we are looking at the fourth quarter as probably when the inflection point starts to happen. Cleary, we've been chasing a loss space which has been part of the gap creator and I think that was in Kevin’s remarks. Some of it was just direct import inventory shift that also affected the quarter. As we start to move through the fourth quarter, we think both will start to mitigate. So I don’t know if it will be completely in balance at that point but certainly we’d expect us start to close the gap.

On that direct import shift, do you have a high degree of confidence that that business will be recaptured in the fourth quarter that it’s simply a question of timing?

Yes, we do. Look, we go through this on a constant regular basis and keep testing it. So far barring anything unforeseen happening on opened orders or whatever, we think we’ve got a pretty good sight line on the fourth quarter and it does look like we would be offsetting most of that.

And my other question and I know you never like to comment on particular customers. But Walmart did sort of spook the world recently with their comments on expectations. What do think that says about the pricing environment that you’re facing this holiday season? And is it more a case of them losing business to other retailers, where Mattel could be picking up some of that business that Walmart appears be concerned about losing? Thank you.

Look, Walmart’s been an excellent performer for us this year and a very strong customer, Sean. So, we’re benefiting from their efforts to get more aggressive and particularly in some of our sectors and we expect that to continue in the fourth quarter. I think what they’re trying to do in-store makes sense and obviously we’re hoping to partner with them in doing it. So we’re quite optimistic on what Walmart is doing at this point, at least from our business standpoint.

And then the last housekeeping question I have is when you say Disney Princess are you including Frozen in that because I don’t know if they’ve officially made that move yet?

Yes we are.

Okay just wanted to clarify that. Thank you very much.

Our next question comes from the line of Steph Wissink with Piper Jaffray. Your line is now open.

Thank you. Good afternoon, everyone. I want to follow-up on Sean's question regarding closing the gap between POS and shipments. I think Richard you talked a little bit about the space losses and rising competition. But can you give any more detail on your ability to fully close that gap if you are facing some intense competition for that space? And then secondly just related to the A&P spend it does remain elevated versus historic levels. How have your discussions been going around 2015 with your retail partners and what's the expectation to maintain that level of support? Thank you.

Yes. So it's Richard. Stephanie we are pretty confident that obviously with the continued results of POS that shipping inevitably will follow and just speaking in the context of clean inventories and good POS we're looking pretty good at this point to close that gap. Statically speaking we will obviously deliver those results at the end of the year but there is a lot of confidence that those numbers will come our way. We are increasing our advertising in the fourth quarter. There is a variety of different promotional efforts along with new allocations in media, some increases in digital as well as some reallocations in terms of traditional TV advertising. Overall I think we are confident in the context of our percentage that we're spending in advertising and we continue to invest significantly more in our core brands and key license partners.

I will touch on next year, I think she also asked that. I think your question was also Steph if I heard you right, do expect us to continue next year in terms of heavy spending was that fair?

Yes. What is expected of you by some of your partners in terms of that elevated spending?

Yes. Look I think we've been pretty clear that we're continuing to stay price competitive. So you probably expect to see us promoting like we have done and our advertising rates I think we've flagged would be also in the same vicinity of where we are this year.

Yes. I think as we plan to '16 we want to make sure that we're focused in on generating top line revenues and get the momentum continue in POS and aligning shipping. So at this point subject to review after the holidays we're planning on keeping those elevated levels in 2016.

Thanks. That's very helpful.

Steph, the last point I would make on your question on space. Remember that as we did the fall research that was another punch through on space loss for us. So when you are talking about inventory and shipping adjusting we should be stable on space now going through the fourth quarter and beyond. So logically it will start to come back in balance.

Yes. I think one of the things that's going to help us to close that gap in POS versus shipping is also the space that we do have is more productive and that should drive more sales.

Thanks guys. Kevin just one follow-up with respect to the loss of Disney and the replacement of that business potentially in part with the DC business, is there any comparability we should think about in terms of the margin structure of the incoming and the outgoing business? Thank you guys.

Yes. I think with regard to that, look the Disney Princess business is a great business both from the top line and bottom line perspective and as we look forward to 2016 we think we've closed as Richard said a significant amount of that gap. I think so that's from a revenue side. I think from a margin side we are confident as we continue to work on the cost side that we can deliver strong margins of 50%. And look we've got a tailwind with respect to our cost savings initiatives in that we're going to be at the high end of the range of $250 million to $300 million and as Chris said earlier we also have a sight line beyond that, that’s well beyond that range. So I think all that together should help us offset Disney Princess from an profit perspective too.

Thanks guys. Appreciate that.

Our next question comes from the line of Lee Giordano with Sterne Agee CRT. Your line is now open.

My question is on emerging markets, just wondering your thoughts about the recent volatility we have seen in China and Russia, it sounds like you are doing pretty well overseas these days. Any changes to your plans? It sounds like you are doing well but just wondering long-term, how you view those markets considering what we've seen lately? Thank you.

Actually Lee, frankly we just got back from China a couple of weeks ago and had a pretty good review on that business and I'll tell you while we are seeing a little bit of impact at retail from some of those latest turmoil. We've got so many good things going there in terms of driving the brands, driving e-commerce, driving new distribution that we haven’t seen a beat missed in that market and continue to be very optimistic with the plans. Russia we went through a little bit of a wobble, like everybody else did, when things cratered earlier in the year and we thought we're going to see a fairly big pullback. If anything that’s actually showing a lot of strength recently. And so we're kind of in a more forward lean posture if you will. But we think the emerging market businesses for us are a huge upside in the coming months.

Great. Thank you.

Our next question comes from the line of Greg Badishkanian with Citi. Your line is now open.

Great thanks. So just if you think about losing Disney Princess in 2016, you core growth of your brands, what’s going to be the biggest driver do you think to bridge the gap?

Like I mentioned, we have a lot of great new volume and incremental volume coming from new partners. The Warner Bros. piece of our business is going to be significant. Obviously as I mentioned, we’re looking forward to the new girls launch, rich IP value, great trend product and a great activation program including content, which will be pretty robust. In addition to that as I mentioned, it is a multi-year multi-theatrical line up with Warner Bros. that we are partnered with them on. In addition to that as well, with the current trajectory of our core brand revitalization as you can see of interest, Barbie and Fisher-Price being the two largest, starting to deliver a POS growth ultimately with the strength that we’re building on 2016 should be another good strong POS year. With the adjustments in cleaner inventory and adjusted space we should start to see some real give back in the context of filling that gap. We’re also really excited about some of the initiatives from the Toy Box, which there is some great new items that we’re obviously launching this fall with View-Master for one, but there is a series of line-ups that are going to be announced subsequently later on for Toy Fair we will show and share with you. But some really powerful new properties and some great new products lined up for 2016. So all-in-all I would say, core brand continued growth, Hot Wheels as you could see, I mentioned it time-to-time again that is to some extent the sleeper in the portfolio delivering great POS and also MEGA a great platform for us in the construction category and of course Teenage Mutant Ninja Turtles which is the theatrical release will commensurate there and that will be great new volume for us.

Great. Makes a lot of sense. And then just in terms of Star Wars and in your Hot Wheels business, a little bit of color there and then just if you could remind us how much Star Wars business did you have during the last movie?

So you know the Star Wars movie -- we are first of all really excited to have a piece of the Star Wars business and in particular I think what it does is it proves the extension possibilities that we have with Hot Wheels. To imagine a Star Wars vehicle integrating Star Wars into vehicle play was pretty extraordinary and the results of which we’re really pleased with and encourages us to extend further partnerships using Hot Wheels as the leverage to do so. Star Wars is going to be a great business for us this year and we anticipate subsequent years to follow and we’ll share more with the results at the end of the year.

Good. All right. Thank you very much.

Thanks, Greg.

Our next question comes from the line of Taposh Bari with Goldman Sachs. Your line is open.

Hey guys good afternoon. A couple of questions on net sales and constant currency. So you’ve given us a bunch of pieces, but can you tell us if that line should grow or decline in the fourth quarter?

I think what we said versus the third quarter we expect the fourth quarter to be bigger.

So yes it will grow in the fourth quarter.

How about year-over-year versus the fourth quarter of last year?

Well we’re sitting here deciding how much we can give you color on this, Taposh. But I'd say would say pretty close is probably we’re going to answer.

Okay. And then as we think about next year you’ve given us a bunch of different pieces and clearly a lot of licenses and opportunities in the works. Is there any possibility that again constant currency net sales can increase next year or is that pretty unlikely in light of the hole that you face and the challenges that you're facing with Monster High?

I am not sure we want to get into quite that level of detail today to be honest with you, but I think what we’re trying to signal is we’re working pretty hard at closing that gap and trying to keep stability at the top line and I think that’s probably where we’ve been.

And last one is just on input costs. Kevin it seems like you called out input costs as a headwind to gross margins year-to-date but clearly the outlook shows a different trajectory. So can you remind us I guess first how much of your COGS are comprised by resin and how we should think about kind of the magnitude of input costs released going forward?

Yes. Well raw material costs with regard to resin are about 15% and the headwinds traditionally over the last few years have really been in direct labor, which has been growing at a double-digit rate. But again as we have talked about we’re trying to bend the cost curve here and as we look at a line of sight beyond our current range we’re really trying to bend that -- continue to bend that cost curve in 2016.

And Richard can I ask one more for you on DC Super Hero Girls, I guess it's a new type of toy, it’s not a doll, it's on an action figure. Where do you expect it to be sold in the toy aisle and what do you think it replaces?

Well, we positioned it as actually action figures for girls and arguably one can debate whether action figures are dolls and dolls are action figures. But ultimately there is some features, articulation, scale that basically position positioning as well that we’re driving to capture girls’ attentions in the action figure aisle. We have great amount of research and insight that suggests that there are girls actually shopping in the action figure aisle. We hope that retailers acknowledge and put the brand and double expose the brand in a variety of different places. That would be obviously determined by retailers. But everybody collectively is pretty excited about the category and certainly that we are providing in fact a play pattern for girls that’s been missing with obviously iconic products really driven by girls themselves, the insights and design application has been really head in head with girl insight.

Great, thank you. Best of luck this holiday.

Operator, I believe we have time for one last question.

Our last question comes from the line of Linda Bolton-Weiser with B. Riley. Your line is now open.

Just on Monster High, I know you’ve talked about it a lot. But can you just kind of explain once again why it is taking so long to kind of get a turnaround strategy for that line? I mean you’ve really made great progress on the lot of the other brands and this one just seems to be so problematic. Is it a matter of prioritizing versus the other brands or what? And then can you just remind us is Monster High similar in margin profitability to Barbie? Thanks.

Sure, Linda. I mean look Monster High was a lightning rod, an unbelievable brand that frankly proved Mattel’s savviness in the context of marketing and content and digital. The reality of how the brand has progressed is, it’s going through a maturity curve that we likely frankly accelerated by moving too quickly away from the core messaging, not necessarily investing enough in product innovation and frankly exploited the characters a little too far without enough content to describe who these characters were. Frankly the insights and research and certainly the response that we get from our consumers and their relationship with the brand and the stories continues to suggest that we have something pretty powerful. And we believe with the right management and investment we’re going to find the sustainable foundation and then start to build upon it. I think some of the work that the team has done is pretty outstanding in the context of it, the speed at which we brought new products, new scales to market. We’ve been doing some tests that we’ve gotten some great reactions on. We’ve re-established our creative messaging. I think for 2016 you will see a whole variety of changes from product to packaging to content. And I think examples like this partnership we’re announcing with Lady Gaga is pretty remarkable and I think that it validates the longevity of what Monster High could be. Clearly we’d like the turnaround to be faster but as I mentioned I am really excited about some of the work that’s going to be coming out for '16 and we anticipate the brand will stabilize and then ultimately we’ll grow upon that stability.

And your second question on the profitability, the profitability is very similar to Barbie, it is a very profitable brand.

Great, thanks a lot.

Thanks, Linda.

There will be a replay of this call available beginning at 8 PM Eastern Time today. The number to call for the replay is 404-537-3406 and the pass code is 39720076. Thank you for participating in today’s call.