Categories Analysis, Leisure & Entertainment

Mattel (MAT) anticipates increased volatility and macroeconomic challenges for the latter half of the year

Adjusted EPS is now expected to be $1.32-1.42 in FY2022

Shares of Mattel Inc. (NASDAQ: MAT) were down 1% on Wednesday, a day after the company delivered mixed results for the third quarter of 2022 and cut profit guidance for the full year. The stock has dropped 7% year-to-date.

Mixed results

Mattel posted net sales of $1.76 billion in Q3 2022, flat on a reported basis and up 3% in constant currency, compared to the same period a year ago. The top line, however, missed estimates. The company delivered adjusted EPS of $0.82 for the quarter, which surpassed projections.

Guidance cut

Mattel cut its adjusted EPS and adjusted EBITDA guidance for the full year, which dampened the sentiment around the stock. It now expects adjusted EPS to be $1.32-1.42 compared to the prior outlook of $1.42-1.48. Adjusted EBITDA is now expected to range between $1.05-1.10 billion versus the previous outlook of $1.10-1.12 billion.

The company reaffirmed its guidance for constant currency net sales growth in the range of 8-10%. This is expected to be driven by the Vehicles and Infant Toddler and Preschool categories, led by Hot Wheels, Fisher-Price and Thomas & Friends, as well as the Challenger categories led by action figures.

Mattel expects the Dolls category to decline slightly with Barbie and American Girl declining in the low single digits. However, it is optimistic about the long-term growth trajectory of both these brands. The current macroeconomic environment remains challenging and the company sees higher volatility, as it moves into the latter part of the year.

Category performance and IP opportunity

In Q3, gross billings in Dolls were down 3% mainly due to declines in Barbie and Spirit. Gross billings were down 9% for Infant, Toddler and Preschool and down 1% for Action Figures, Building Sets, Games, and Other. Gross billings for Vehicles grew 12% driven by Hot Wheels and Matchbox.

Mattel is on track with its strategy to grow its IP-driven toy business and expand its entertainment offering. It recently signed a multi-year license renewal with the Pokemon Company for building sets in all major markets. The release of its Monster High television movie received positive responses with a sequel being approved. The company also has series based on Monster High, Thomas & Friends, Polly Pocket and Fireman Sam coming up.

Mattel has a multi-year agreement with Netflix for original content, which includes three series. It released its Barbie animated movie on Netflix and it continues to see excitement around its upcoming Barbie theatrical film which is expected to release in July next year. Despite the challenging environment, Mattel believes its brand portfolio will stay resilient.  

Click here to read the full transcript of Mattel’s Q3 2022 earnings conference call

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