Dive Brief:

• Mattel on Wednesday reported a 14% net sales decline that included a 10% impact on gross sales from the Toys R Us liquidation, the company said in a press release.

• The toy maker also announced it was slashing 2,200 jobs, or about 22% of its corporate workforce, as part of an effort to save $150 million this year.  

• The toy maker's reported operating loss was $189.2 million. Adjusted for a bad debt loss from the Toys R Us liquidation and other non-core expenses, Mattel's operating loss was $141.3 million, according to a company press release.

Dive Insight:

Mattel is in a turnaround, CEO Ynon Kreiz told analysts on Wednesday, noting that its second quarter was challenging mostly because of the demise of Toys R Us. But he also said there's greater potential for sales to be absorbed by other retailers than the company first thought. 

"The industry is evolving. But the toy market is growing and we should be able to reverse our own trends given our strong standing and the quality of our assets," he said, according to a transcript from Seeking Alpha. "We are working in collaboration with other major retailers who are taking market share and enhancing the shopping experience for consumers."

Despite the Toys R Us liquidation, Barbie and Hot Wheels brands continued strong growth, with Barbie gross sales up 12% and Hot Wheels gross sales up 21%. But lower sales of Fisher Price and other owned brands were a drag on total sales, though they were partially offset by Jurassic World toys and higher sales of Hot Wheels. 

Fortunately for Mattel and other toy makers, there are plenty of retailers eager to fill the $1.3 billion hole in the U.S. toy market left by Toys R Us. Among them are Amazon, which is reportedly working on a Toys R Us-like holiday catalog, as well as mass merchants and department stores, specialty retailers like Party City and smaller players, including the revived FAO Schwarz, the potentially revived KB Toys and independent toy stores. In fact, the American Specialty Toy Retailing Association in the spring said that this year will be "the best year yet for neighborhood toy stores nationwide," with sales at local toy stores poised for a possible 20% increase after the wind down of Toys R Us. 

While Mattel expects the Toys R Us collapse to continue to hit the top line this year, Kreiz​ said executives are "optimistic" that that will subside by 2019. B. Riley FBR Senior Research Analyst Susan Anderson said in a Thursday note to clients, "We believe [Mattel] is largely past the most significant impacts from the TRU liquidation." Anderson has said previously her team expects Mattel to recapture 25% of its lost Toys R Us sales this year. 

But there are other challenges on the horizon, too, Kreiz warned. "[W]e expect this positive development to our full-year outlook to be offset by new headwinds, including the recent strengthening of the U.S. dollar and challenges in China," he said. Anderson noted that overestimates of demand in China have led to excess inventory.