Leading toy maker Mattel, Inc. (MAT Quick QuoteMAT - Free Report) outlined its strategic plan -- a guideline for achieving growth – as well as the company’s financial framework for the medium-term at its Investor Day event in New York City on Jun 14.

As the global toy market continues to grow, with changing consumer and market trends that are transforming the future, the company’s Chief Executive Officer (CEO), Margo Georgiadis, believes that Mattel is well positioned to capitalize on the impending opportunities given its differentiated and market-leading assets.

Inside the Headlines

Moving ahead, Mattel aims to focus on a five-pillar strategy to reinvent itself and provide improved and sustainable growth over the long term.

Firstly, the company is focused on building its Power Brands (American Girl, Barbie, Fisher-Price, Hot Wheels and Thomas & Friends) into 360-degree connected systems of play and experiences. In fact, the company has formed a brand development framework to unlock the scale and profitability of its brands and modernize them for the digital world.

The framework expands these brands into systems of play, both physical and digital. Moreover, the company aspires to drive further growth by vital adjoining opportunities that widen the scope of Mattel's Power Brands and complete the 360-degree experience, including Consumer Products, Gaming, Content and Live Experiences.

In fact, Mattel is already moving promptly on this path as it is building a growing pipeline of tech-enabled products that capitalize on new play patterns and allows it to extend beyond traditional toy age ranges. Notably, Mattel plans to bring these new scaled, digitally connected toy offerings to market beginning in fall 2018.

Secondly, given the fact that emerging markets are expected to be the leading driver of future industry growth, Mattel aims to accelerate its presence therein. The company already sells products in most of European, Latin American and Asian countries. Given the enormous untapped potential, it thus plans to increase its momentum in emerging markets with tailored product lines and strategic partnerships.

Particularly, to succeed in China, Mattel has adopted a solutions-based and digital-first method to localize products, which has aided the company to scale swiftly in the past five years. In fact, it is doubling the efforts to capture a bigger share of China’s fragmented yet lucrative toy market and has struck ground-breaking deals. Moving ahead, the company also aims to expand more quickly and efficiently across other top Asian markets, such as India and Indonesia.

Thirdly, the company is making the shift to a company-wide approach in order to oversee its innovation portfolio and doing away with siloes across brands, categories and partners. With this, Mattel intends to better focus on and fortify its product innovation pipeline. Consequently, the company anticipates to accelerate its innovation cycle time from 18 months today to a target of six to nine month cycles to develop new products.

Fourthly, Mattel aims to reshape its operations to transform itself into a faster, leaner and smarter organization. To accomplish this goal, the company anticipates freeing up $150-$200 million to plow in rearchitecting the company. It will thus be focusing on three key areas – commercial side of the business, manufacturing and supply chain, and IT transformation – to bring about the desired change.

Finally, the company is taking steps to reignite its culture and team. To this end, Mattel has initiated a new purpose, promise and values as well as begun hiring and will continue to hire strategic talent to bring in change across the organization and speedup its development.

Investment Blueprint

We note that Mattel plans to make incremental investments in order to drive growth and margin improvement. It projects the collective incremental investment to execute this strategy in both capital and operating expenditures to amount to roughly $250 to $350 million.

Additionally, Mattel is apparently cutting its quarterly dividend by more than half, to unlock resources for reinvestment as well as reinforce its balance sheet and offer additional financial and strategic flexibility.

Medium-Term Financial View

Mattel is of the view that its future-state business model can attain mid-to-high single-digit revenue growth and operating profits at, or over, 15%, in the medium-term.

What’s Up at Mattel?

Mattel’s shares have compared unfavorably with the Zacks categorized Toys/Games/Hobby Products industry in the past six months. The company’s shares have lost 25.3% against the broader industry’s gain of 35.6%, during the same time period. Apart from various macro concerns, hitches at the company level have also been hampering the stock’s performance.

Age compression is tapering the demand for traditional toys and hitting the toy makers' revenue severely, and Mattel is no exception. Continuous competition from technology-based gaming companies like Electronic Arts, Inc. (EA Quick QuoteEA - Free Report) and Activision Blizzard, Inc. has also been posing a significant threat to the market position of toy makers like Mattel.

A challenging retail environment for toys along with forex headwinds is further hampering the company’s performance. Weak performance in key international markets is also a major hindrance to the company’s top-line growth.

Meanwhile, lack of innovative schemes for brand awareness and brand innovation has been hurting Mattel’s revenues and point of sale momentum. Furthermore, sluggish performance of certain segments and brands along with the loss of Disney deal to Hasbro Inc. (HAS Quick QuoteHAS - Free Report) has added to its woes. Also, costs related to sales-boosting initiatives may continue to keep profits under pressure in the near term.

Nevertheless, given the strong product lineup, which includes core brands, licensed brands and lucrative product associations Mattel remains well positioned for growth. In fact, the company’s focus on improving point of sale through introduction of more products, brand innovation and strategic initiatives like entering into new categories and strengthening the Girls portfolio bodes well. Going forward, Mattel’s renewed contracts for toy franchisees of Cars 3 and Toy Story 4 are likely to boost its top line. Meanwhile, efforts to achieve cumulative cost savings and enhanced margins remain added positives for the company.

Bottom Line

Management is confident that this aggressive strategic repositioning will augment the company’s long-term growth and profitability.

Thus, going forward, it remains to be seen that how profitable the company’s strategic growth plan turns out to be in the long run and whether it can aid in stimulating the brand and uplift this currently Zacks Rank #5 (Strong Sell) rated company.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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