Mattel Is Banking On Barbie, And Its Long Game, To Beat Inflation

MattelMAT
CEO Ynon Kreiz’ message to Wall Street today was don’t underestimate the power of Barbie, and the strength of Mattel’s turnaround game plan.

Kreiz was emphasizing the positive after Mattel’s third quarter earnings release Tuesday left investors worried that inflation, and price-conscious consumers, could derail the gains Mattel has made in recent years.

The morning after he reported mixed results, Kreiz in a video interview aired on Yahoo Finance, said investors should read full-year results as a sign the company’s turnaround strategy continues to drive gains, rather than focus on the third quarter.

“We are in the midst of a challenging economic environment but our year-to-date results of double-digit growth in net sales, adjusted EBITDA, adjusted operating income and adjusted eps [earnings per share] show that we are successfully navigating a complex landscape and our strategy is working,” Kreiz said.

“We believe our fundamentals are strong and we are very confident about our multi-year growth trajectory,” Kreiz said in the interview.

Mattel stock dropped by more than 4% in pre-market trading today, then regained some of its value, but remained down more than 2% by the final hour of trading. It closed today at $19.23, down 2.73%.

Mattel missed expectations for sales but exceeded expectations for earnings. Net sales were essentially flat at $1.76 billion, missing analysts’ estimates of $1.78 billion. After accounting for currency fluctuations, net sales were up 3% in constant currency, Mattel reported.

The company also reduced its guidance on full-year earnings, trimming its forecast for adjusted income for the full year from $1.42 to $1.48 to $1.32 to $1.42.

What may have worried Wall Street more that those numbers was Mattel’s acknowledgment that sales of Barbie, its top brand, declined 3% during the third quarter.

Much of the discussion on the company’s conference call Tuesday evening involved Barbie and her future earning potential.

“There is a lot of skepticism around whether Barbie can grow next year,” Arpine Kocharian of UBS said on the call.

While Mattel executives are anticipating that the release of the Barbie movie starring Margo Robbie and Ryan Gosling, Kocharian noted that banking on a live action film “can be a bit tricky.”

But Kreiz and Mattel President and COO Richard Dickson repeatedly emphasized their ongoing love for the Barbie brand during the call.

“We’re incredibly confident in Barbie for a whole lot of reasons,” Dickson said. Top among those is the sustained growth Barbie has enjoyed over the past five years. The brand has doubled in size during that period and has been the top selling global brand overall for the past two years, Dickson said.

Even more encouraging, Dickson said, is that despite the third-quarter decline, Barbie gross billings year-to date are up 3% in constant currency, impressive growth coming on top of record sales in 2021.

And the Barbie licensing potential does appear to be unlimited. Today, Italian luxury automaker announced that it had partnered with Mattel on what Maserati called “an audacious collaboration” – a Barbie-themed ultra-limited edition luxury SUV created as one of the Neiman Marcus fantasy holiday gifts.

A big part of Mattel’s growth strategy has hinged on expanding its reach into entertainment, and leveraging the power of its brands through a growing number of movie and television products.

Higher costs, primarily for ocean freight, and materials such as resins and zinc, hurt profit margins during the quarter, Mattel said.

But the company expects sales will accelerate during the fourth quarter, and that consumers this year will return to pre-pandemic patterns of doing much of their shopping later in the holiday season.

Kreiz is confident that Mattel is well-positioned to have a successful fourth quarter and holiday season.

“We believe that important big brands, quality products will end up winning the season,” he said during the conference call. “This is what we’re focused on. This is where we excel.”

And the biggest brand Mattel is betting on for a winning fourth quarter, and 2023, is Barbie.