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Mattel Inc.'s (MAT - Analyst Report) first-quarter 2013 earnings of 11 cents per share beat the Zacks Consensus Estimate by 37.5% and were considerably higher than the year-ago earnings per share of 2 cents. Year-over-year increase in net sales combined with lower costs led to the growth in earnings.

During the quarter, net sales grew 7.0% year over year to $995.6 million, despite unfavorable impact of currency translation. The American Girl line was the major contributor to sales growth. Revenues also edged past the Zacks Consensus Estimate of $983.0 million.

Quarter Highlights

Worldwide gross sales were $1.1 billion, up 7.0% year over year. Gross sales from North America (including the U.S., Canada and American Girl)  increased 5% year over year while international gross sales leaped 9.0% year over year, despite an adverse currency impact of 2 percentage points.

Mattel’s product segments comprise Mattel Girls & Boys Brands, Fisher-Price Brands and American Girl Brands.

Gross sales at Mattel Girls & Boys Brands increased 11% year over year to $692.2 million. Barbie sales were down 2%. However, Other Girls Brands sales shot up 56% buoyed by the Monster High brand.

Gross sales of the Wheels business, which consists of the Hot Wheels, Matchbox and Tyco R/C brands, slipped 2%. Sales from Entertainment business nudged up 1%.

Sales from Fisher-Price Brands unit,which includes Fisher-Price Core, Fisher-Price Friends and Power Wheels brands,slumped 7% to $287.3 million hurt by Fisher-Price Core brand.

Led by Saige, theAmerican Girl Brands leaped 32% to $100.5 million, powered by sound business in all core doll segments. A solid retail performance also boosted the segment.

Gross margin expanded 320 basis points (bps) year over year to 54.2% while operating margin grew 350 bps to 6.6%. Lower cost of sales had a positive impact on gross margin. Operating margin benefited from lower selling and administrative expenses and flat advertising expenses ratio.

Our Take

Following its lower-than-expected performance last quarter, Mattel turned around this time by beating both top-and bottom-line estimates by wide margins. The company’s strong performance especially in debt-ridden Europe deserves a special mention.

Management expects the top line to improve in 2013 and beyond with strong momentum in the girls segment, Hot Wheels in the boys business as well as Thomas and Friends brands in the Fisher-Price portfolio.

However, increasing input costs and a tough retail environment remain the areas of concern. Moreover, persistent sluggishness in its powerhouse brand Barbie also remains an overhang. Mattel currently carries a Zacks Rank #3 (Hold).

Some other toy companies which will likely report their earnings in coming days are Hasbro Inc. (HAS - Analyst Report), LeapFrog Enterprises Inc. (LF - Snapshot Report) and Activision Blizzard Inc. (ATVI - Snapshot Report). Hasbro is slated to report on Apr 22 while LeapFrog and Activision Blizzard will likely report on May 2 and May 6, respectively.

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