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Mattel expects FY'17 sales to drop, plans cost-saving initiatives

Mattel Inc. gave a bleak outlook for its upcoming financial results while also revealing plans to cut costs in a Dec. 11 SEC filing.

The struggling toymaker expects gross sales for full-year fiscal 2017 to drop by "a percentage in at least the mid-to-high single digits" compared to a 3% decline in 2016.

Advertising and promotion expenses for the full year are expected to be "slightly higher" than the previous year, while fourth-quarter operating expenses are forecast to exceed those in the year-ago period. As a result, Mattel expects its operating income margin for the fourth quarter to be "significantly lower" than the year prior.

In addition, gross margins and operating income could be further affected by charges or expenses in the fourth quarter.

The company said that in the third quarter, it identified cost-saving initiatives that will continue until the end of 2019. They target savings of at least $650 million through reducing cost of sales, cutting selling and administrative expenses, and lowering advertising and promotion expenses.

Mattel expects the profitability improvement plans to be linked to "a meaningful portion" of senior employee compensation, and also anticipates about $200 million in severance and restructuring costs between the fourth quarter and the end of 2019.

In 2018, the company plans to achieve about one-third of the $650 million cost savings through simplification, complexity reduction and organizational streamlining.

Its profits have been on a declining trajectory in recent years, falling from $498.9 million in 2014 to $318.0 million in 2016. For the nine months ended Sept. 30, net loss stood at $772.6 million.

Mattel disclosed the outlook and initiatives shortly after announcing a plan to launch a $1 billion private offering of senior notes due 2025 to repay debt. It also noted in the SEC filing that it intends to replace its revolving credit facility with a new $1.6 billion senior secured revolving credit facility.

The company's weak operating performance and proposed notes offering led Fitch Ratings to downgrade several of its ratings Dec. 11, including lowering the long-term issuer default rating to BB from BBB-.