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Mattel’s Loss Widens in Q2, but Barbie Sales Jump 23%

Image source: Mattel.

Mattel (NASDAQ: MAT) reported its second-quarter 2016 results after the market closed on Wednesday. While the leading toy maker's revenue and earnings declined from the year-ago period, they both beat analysts' estimates, thanks in part to robust Barbie sales.

Shares of Mattel were flat on Thursday. The toy maker's stock had returned 44.4%, including dividends, over the one-year period through Thursday, trouncing the S&P 500's 4% return and rival Hasbro's (NASDAQ: HAS) flat return. Hasbro, however, remains the decisive long-term winner, with its five- and 10-year returns pulverizing Mattel's. 

Mattel's key quarterly numbers

Metric

Q2 2016

Q2 2015

Growth (YoY)

Growth in Constant Currency (YoY)

Net Sales

$957.3 million

$988.2 million

(3.1%)

(1%)

Operating Income (GAAP)

($11.7 million)

$0.6 million

N/A

--

Operating Income (Adjusted)

$6.2 million

$18.8 million

(67%)

--

GAAP Earnings Per Share (EPS)

($0.06)

($0.03)

(100%)

--

Adjusted EPS

($0.02)

$0.01

N/A

--

GAAP = generally accepted accounting principles. YoY = year over year. Data source: Mattel.

Revenue beat Wall Street's consensus estimate of $936.6 million, while the adjusted earnings loss of $0.02 was narrower than the $0.05 loss analysts expected.

Fisher-Price once again drove results

  • Fisher-Price and the small construction/arts & crafts segment experienced year-over-year revenue growth on a reported basis and in constant currency. Mattel girls & boys, the largest segment, and American Girl continued to lose revenue.
  • Regionally, North America's net revenue rose 3% as reported and in constant currency, while international continued to struggle, with net revenue down 10% as reported and 4% in constant currency. Revenue was split between 59% North America and 41% international.

Mattel's girls & boys (52.6% of gross revenue)

  • Gross revenue declined 8% as reported, and 5% in constant currency, to $553.7 million.
  • Within this category, Barbie sales jumped 23% as reported, and 24% in constant currency, to $160.5 million; "other girls" sales plunged 60%, and 57% in constant currency, to $70.4 million; sales for the wheels category (includes Hot Wheels and Matchbox brands) accelerated 1%, and 8% in constant currency, to $162.2 million; and entertainment (includes games) sales rose 19% as reported, and 21% in constant currency, to $160.6 million.

Fisher-Price (32.8% of revenue)

  • Revenue increased 3%, and 6% in constant currency, to $346.3 million.
  • The maker of baby and preschool toys was the only segment that grew revenue on a reported and constant-currency basis in 2015.

Construction/arts & crafts (6.9% of revenue)

  • Revenue rose 12% as reported, and 22% in constant currency, to $72.3 million.

American Girl (6.5% of revenue)

  • Revenue declined 19% as reported and in constant currency (this brand is only sold in North America) to $68.1 million.
  • Revenue has declined sharply in recent years due to increased competition in the tall and moderate-to-high-end doll market, a niche that once belonged to American Girl. Competitors have entered the space with less expensive offerings.

Barbie's hot-pink results

Mattel's introduction earlier this year of the Fashionista line, with three new shapes for Barbie, was one catalyst for the brand's year-over-year revenue growth. Image source: Mattel.

Barbie sales were encouraging, though one quarter doesn't make a comeback. Last quarter, sales of the iconic doll declined 3% on a reported basis, and were flat in constant currency. Investors need to see a few consecutive quarters of solid year-over-year revenue increases before giving the Pink One back her dusty queen-of-the-doll-world tiara.

The Barbie brand remains important because it still accounts for a sizable portion -- 15.2% in the quarter -- of Mattel's top line. However, it's not Mattel's single largest brand – Fisher-Price wins that crown, accounting for nearly 33% of the company's total revenue. 

Goodbye Disney license 

The "other girls" revenue plunge is due to the global license from Disney to produce and sell dolls based on Disney Princess characters and the phenomenally popular Frozen film transitioning on Jan. 1 from Mattel to Hasbro. 

Mattel's gross sales from this partnership were about $450 million last year, or about 8% of its total revenue.

Hello Jurassic World

Mattel announced the day before it released earnings that it was awarded the toy license for the Jurassic Park film franchise beginning in July 2017. Last summer's Jurassic World, the fourth installment of the Jurassic Park series, was a blockbuster for Comcast's Universal Studios, taking in nearly $1.7 billion worldwide. A sequel is slated for 2018.

This news could be considered a positive: Universal must have confidence in Mattel's ability to handle this license, and Mattel could use a new revenue source. However, one has to wonder how desirable the terms are, since Hasbro, which currently holds the Jurassic license, reportedly wasn't interested in renewing it. Here's what Hasbro CEO Brian Goldner said during the company's earnings call on Monday:

[W]e have made the decision at the end of 2017 we will no longer handle Jurassic Park. We had a many-year relationship with Universal. We'll no longer handle Jurassic Park because we were unable to arrive at a mutually beneficial financial arrangement on that brand.

Hasbro does about $100 million in Jurassic sales in a movie year, and hopes to do roughly half that this year. Analysts project that Mattel's annual revenue in 2018 will be $6.2 billion. Assuming that proves accurate and Mattel's Jurassic sales are $100 million in movie-year 2018, the revenue generated from this license will account for 1.6% of the company's total revenue. 

Looking ahead 

Mattel's Q2 results suggest that the company's turnaround is on track. That said, investors should take note that the toy maker is still posting considerable operating and net losses on a GAAP basis.

The company's primary near-term challenges include maintaining Barbie's growth momentum and filling the revenue gap created by the loss of the Disney license. While the Jurassic license win will help on the latter front, hopefully Mattel won't be sacrificing margin for revenue growth.

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Beth McKenna has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Hasbro and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.