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Mattel (MAT) Q4 Earnings Lag, 2023 View Disappoints, Stock Down

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Mattel, Inc. (MAT - Free Report) delivered fourth-quarter 2022 results, wherein both earnings and revenues missed the respective Zacks Consensus Estimate, after surpassing the same for 10 straight quarters. Both the metrics declined on a year-over-year basis.

Following the results, the company’s shares declined 9.8% in the after-hours trading session on Feb 8.

After the results, Ynon Kreiz, Mattel’s chairman and CEO, stated, “Our fourth quarter results were below our expectations, as the macro-economic environment was more challenging than anticipated. While less than expected, POS grew in the quarter and the full year and we achieved growth in net sales in constant currency for the fourth consecutive year.”

Mattel, Inc. Price, Consensus and EPS Surprise

Mattel, Inc. Price, Consensus and EPS Surprise

Mattel, Inc. price-consensus-eps-surprise-chart | Mattel, Inc. Quote

Earnings & Revenues Discussion

For the fourth quarter, the company reported adjusted earnings per share (EPS) of 18 cents, missing the Zacks Consensus Estimate of 27 cents. In the prior-year quarter, the company reported adjusted earnings of 53 cents.

Net sales during the quarter amounted to $1,401.9 million, missing the Zacks Consensus Estimate of $1,658 million. The top line declined 22% year over year. Moreover, on a constant-currency (cc) basis, sales decreased 19% from the prior-year quarter.

In the North America segment, gross billings declined 25% (as reported and at cc) year over year. Gross billings in the International segment declined 19% (reported) and 13% (cc) year over year. The decline was primarily due to the dismal performance of Infant, Toddler, and Preschool (including Fisher-Price and Thomas & Friends), Dolls (including Barbie), and Action Figures, Building Sets, Games and Other, partially offset by growth in Vehicles (including Hot Wheels).

Net sales in the North America segment declined 26% year over year on a reported and cc basis. Net Sales in the International segment decreased 18% on a reported basis and 12% at cc year over year.

Brand-Wise Worldwide Sales

Mattel, through its subsidiaries, sells a broad range of toys. These items are grouped under different brands — Barbie, Hot Wheels, Fisher-Price, Thomas & Friends and Other.

Worldwide gross billings by Mattel Power Brands decreased 22% (on a reported basis) and 19% (at cc) year over year to $1,559.6 million. The Barbie brand witnessed a decline of 33% (on a reported basis) and 30% (at cc) year over year.

However, gross billings at the Hot Wheels brand rose 8% (on a reported basis) and 13% (at cc) year over year. Gross billings at the Fisher-Price and Thomas & Friends brands were down 33% (on a reported basis) and 30% (at cc) year over year. Gross billings at Other increased 21% (on a reported basis) and 18% (at cc) year over year.

Operating Results

Adjusted gross margin contracted 620 basis points year over year to 43% due to inventory management initiatives, which includes higher close-out sales as well as inventory obsolescence expenses, higher input cost inflation, unfavorable fixed cost absorption and higher royalty costs.

During the quarter under discussion, adjusted other selling and administrative expenses decreased $80 million year over year to $281 million. The decrease can primarily be attributed to a decline in incentive compensation and savings from the Optimizing for Growth program.

Balance Sheet

As of Dec 31, 2022, the company’s cash and cash equivalents were $761.2 million compared with $731.4 million as of Dec 31, 2021. Total inventories as of the end of the fourth quarter were up 15% year over year to $860.2 million.

The company’s long-term debt was $2,325.6 million as of Dec 31, 2022, lower than $2,571 million as of Dec 31, 2021. Shareholders’ equity was $2,056.3 million.

Outlook

For 2023, the company anticipates flat net sales in comparison to 2022 at cc. Adjusted gross margin is expected at nearly 47% compared to 45.9% reported in the prior year. Adjusted EBITDA is expected to be in the range of $900-$950 million, compared with $968 million reported in the prior year.

Capital expenditures are expected to be in the range of $175-$200 million, compared with $187 million reported in 2022. The company anticipates 2023 adjusted EPS of $1.10-$1.20, down from $1.25 reported in 2022. The estimated range is below the current Zacks Consensus Estimate of $1.60.

Zacks Rank & Key Picks

Mattel currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the Zacks Consumer Discretionary sector are OneSpaWorld Holdings Limited (OSW - Free Report) , Manchester United plc (MANU - Free Report) and Las Vegas Sands Corp. (LVS - Free Report) , all currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

OneSpaWorld has a trailing four-quarter earnings surprise of 84.2%, on average. Shares of the company have increased 7.5% in the past year.

The Zacks Consensus Estimate for OSW’s 2023 sales and EPS indicates a rise of 24.2% and 91%, respectively, from the year-ago period’s levels.

Manchester has a trailing four-quarter earnings surprise of 34.4%, on average. Shares of the company have gained 58.2% in the past year.

The Zacks Consensus Estimate for MANU’s 2024 sales and EPS indicates a rise of 11.4% and 27.8%, respectively, from the year-ago levels.

Las Vegas Sands has a long-term earnings growth rate of 4.9%. The stock has increased 27.2% in the past year.

The Zacks Consensus Estimate for LVS’ 2023 sales and EPS indicates a rise of 99.2% and 217.5%, respectively, from the year-ago period’s estimated levels.

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