Industry-leading toy company Mattel, Inc. (NASDAQ:MAT) has had a rough couple of years. In 2016, the toymaker fought declining revenue that fell to $735 million, a 3% year-over-year drop, and losses of $113 million, a 55% increase. There was further deterioration to begin 2017, as the company worked through a backlog of inventory and Barbie sales fell. The stock is down 17% so far this year and has fallen 27% over the past 12 months.

At its investor-day presentation on Wednesday, Mattel announced that it will slash its dividend by 61%, from $0.38 to $0.15 per quarter. Investors had been wondering if this might be coming. The company paid out over $500 million for its dividend last year, while generating only $318 million in profit. That path wasn't sustainable.  Mattel hopes to return to a much healthier payout ratio of 50% to 60% of its available profit in dividends. 

An assortment of Barbie dolls and a sign declaring The Doll Evolves.

Can Mattel revive Barbie's slumping sales? Image source: Mattel.

Mattel also announced that it planned to achieve $200 million in cost savings, which, along with the reduced dividend, would provide capital to invest in growth initiatives.

Marketplace trends

"It is time for us to reinvent this company for what today's children and families need," Mattel CEO Margo Georgiadis said. To that end, the company hopes to capitalize on several trends in the marketplace that it sees as opportunities and has developed what it calls its 360 Degree Brand Development Framework to address them.

A graphical representation of Mattel's Brand Framework, focusing on content, games, consumer products, and live experiences.

Can Mattel's Brand Framework lead to success? Image source: Mattel.

Mattel cited the increasing relevance of digital and mobile in popular culture, pointing out that 85% of children in the United States have access to a tablet. The company plans to augment its most iconic brands, including Barbie, Thomas the Tank Engine, and American Girls by creating online content, digital games, and connected toys, which will give consumers new ways to interact with its most iconic brands. Mattel will also expand those engagements beyond the digital realm with live experiences, such as American Girl events and a Thomas theme park.

Meanwhile, emerging markets are expected to drive the majority of growth in the toy industry over the next several years, accounting for 62% of the $20 billion growth potential between now and 2021. The early education and training market in China is three times the size of the toy market, and Mattel has announced the formation of a new joint venture with Fosun Group in China to develop play clubs in the world's most populous nation. The clubs will combine hands-on play with educational experiences to tap into that opportunity.

Cost-cutting

Mattel estimates that it can realize $200 million in savings, which it can then invest in growth initiatives. In addition to its product-centric plans, Mattel will address several business processes that it believes will trim costs. For example, the company plans to make a big investment in updated information-technology systems and institute changes to its supply chain.

Mattel believes these upgrades will allow it to better manage inventory, provide increased customer and product insights, and decrease the time to market for new products. They'll also help as the company pushes further into e-commerce. 

The first step is admitting you have a problem

Mattel didn't just focus on the recovery. It issued a rare mea culpa in which it acknowledged several issues that got it into this situation in the first place. The company mentioned mismanaging key brands, such as Monster High and American Girl, and falling into the trap of a short-term focus. To help concentrate on the bigger picture, the company will no longer provide quarterly or annual guidance to analysts, preferring to emphasize a multi-year vision.

Mattel is making the hard decisions necessary to position the company for success. While there are no guarantees, these moves do put the company in a better position to leave the blunders of the past behind and regain its foothold. 

And that's why, rather than seeing Mattel continue to do things such as pay an unsustainable dividend, investors should be happy with the company's decision to realign the business as a way to return to growth.

Danny Vena owns shares of Mattel. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.