Mattel says retailers are still skittish about stocking up on toys, but sticks with its financial outlook

By Bill Peters

'While retail inventory management impacted the first quarter's results, the underlying business performed well,' CEO says

Toy maker Mattel Inc. on Wednesday reported better-than-expected first-quarter results and held to its full-year outlook -- despite concerns about demand for action figures, games and Barbie dolls.

The results arrived ahead of the release of the "Barbie" movie, set to hit theaters in July. Executives for Mattel (MAT) said that retailers, who have bought fewer toys as they try to clean out their own stockpiles of unwanted items, should have those inventories sorted out by the end of first half of the year.

Mattel reported a first-quarter net loss of $106.5 million, or 30 cents a share, contrasting with a profit of $21.5 million, or 6 cents a share, in the same quarter last year. Revenue slid 22% to $814.6 million, compared with $1.04 billion in the prior-year quarter.

Adjusted for exclude severance and restructuring expenses and some recalls, Mattel lost 24 cents a share, contrasting with a profit of 8 cents a share in the prior-year quarter.

Analysts polled by FactSet expected Mattel to report an adjusted loss of 26 cents per share, on revenue of $742 million.

"While retail inventory management impacted the first quarter's results, the underlying business performed well," Chief Executive Ynon Kreiz said in a statement. "Mattel achieved growth and gained market share, per Circana. The fundamentals of our business are strong."

Chief Financial Officer Anthony DiSilvestro also said he expected consumer demand to be "positive" for the year and for sales to improve, as "shipping patterns revert to historical trends in the second half."

The company forecast adjusted earnings per share of between $1.10 and $1.20. FactSet forecast $1.17.

Shares rose 0.2% after hours on Wednesday.

Mattel reported earnings as the toy industry comes off heightened demand during the pandemic, when lockdown boredom and government stimulus helped fuel demand. But more recently, rival Hasbro Inc. (HAS)cut staff, and waning interest in action figures as weighed on Mattel. Retailers have pulled back on orders, as they try to clear a surplus of unwanted goods, after inflation forced more consumers to cover basics.

Both Hasbro and Mattel are hoping big movie releases this year -- for Hasbro, it's "Dungeons & Dragons: Honor Among Thieves" -- can help rejuvenate interest in toys and games. But BofA analysts this month said the D&D entry "has been outshined by the success of ["The Super Mario Bros. Movie"], and we do not believe it has driven much increased engagement with the game."

Analysts have been trying to parse out any potential gains for Mattel from the new "Barbie" movie. The BofA analysts said they were upbeat about Mattel's prospects this year, helped by that release, as well as the relaunch of Monster High dolls and new Disney Princess and Frozen toys.

UBS analysts expressed concerns about more discounts for toys amid the fall-off in demand. They said that the new "Barbie" movie might not exactly lift toy sales, but that it could help in other ways.

"Our estimates call for largely flattish to slightly down Barbie revenues for '23, and the brand remains the most profitable franchise for Mattel with operating profit margins north of 21%," they said.

"We expect the upcoming movie to have an overall halo effect on the franchise, with perhaps limited impact on toy sales -- at least initially -- while the bigger opportunity is in consumer products as the film is targeting an older audience," they continued. "This might not move the needle in revenues as much , but could be impactful for MAT's earnings, given substantially higher margin of more than 80% on royalty stream."

-Bill Peters

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04-27-23 0751ET

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