Mattel (MAT): Here are a few points to keep in mind if you are considering this toymaker

Shares of Mattel Inc. (NASDAQ: MAT) have gained 1% year-to-date and 6% over the past 12 months. The company delivered double-digit growth in sales and improved profitability for its most recent quarter but margins were impacted by cost inflation. Here are a few points to keep in mind if you have an eye on this stock:

Revenue and profitability

Mattel generated net sales of over $1 billion in the first quarter of 2022, which was up 19% from the year-ago period. On a constant currency basis, sales growth was 22% and total gross billings were up 23%. The top line benefited from increased points of distribution as well as retailers restocking inventories following a strong holiday season.

In its most recent quarter, the toymaker delivered adjusted EPS of $0.08 compared to a loss of $0.10 in the prior-year period. The improvement was mainly driven by growth in operating income and lower interest expense.

For FY2022, Mattel expects net sales to grow 8-10% in constant currency and adjusted EPS to range between $1.42-1.48. In FY2023, the company aims to achieve high single-digit growth in net sales and to exceed adjusted EPS of $1.90.

Margins

In the first quarter, Mattel’s adjusted gross margin declined 70 basis points to 46.6%, mainly due to inflation. The company managed to offset inflation to an extent through pricing and cost savings. The toymaker expects cost inflation, mainly in raw materials and ocean freight, to be more significant in 2022 compared to 2021 and then to moderate in 2023. Adjusted gross margin is expected to decline to 47% in 2022 from 48.2% in 2021. Mattel believes the negative impact of inflation on gross margin can be offset mostly through pricing and cost savings.

Strong category performance

Mattel witnessed strong performance across its main categories. Dolls grew gross billings by 8% in Q1, led by Barbie and Polly Pocket. Billings for Barbie were up 12% during the quarter. Vehicles recorded billings growth of 36% helped by broad-based growth across Hot Wheels, Matchbox and Disney’s Pixar Cars.

The Infant, Toddler and Preschool category saw billings growth of 15% while the challenger categories together grew 44% helped by growth in action figures and building sets. Action Figures gained 75%, driven by Jurassic World, Lightyear and Masters of the Universe.

IP-related opportunity

Mattel has significant opportunity to grow its IP-driven toy business. The company has entered into a multi-year global licensing agreement with Universal for Dreamworks Animation’s Trolls which will give it the rights to develop a full line of this franchise. It also expanded its DTC offerings to customers across several countries in EMEA.

Mattel is also expanding its entertainment offering in order to capture the full value of its intellectual properties. The company is involved in several upcoming movie and game launches that will give it the opportunity to further leverage its brands.

Click here to read more on toy stocks