Mattel, Inc.’s MAT growth is attributable to its solid product portfolio, execution of the Optimizing for Growth program and focus on IP-driven offerings.
Shares of MAT have gained 31.5% in the past six months, outperforming the Zacks Toys - Games - Hobbies industry’s 17.4% growth.
This toy manufacturer delivered a trailing four-quarter earnings surprise of 84.2%, on average. Earnings estimates for 2023 have moved north from $1.16 per share to $1.19 per share, over the past 60 days. The company is benefiting from increased demand for Hot Wheels, the launch of new products aligned with the Barbie movie and the execution of its IP-driven toy business strategy.
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However, this Zacks Rank #3 (Hold) company is facing headwinds in the form of macroeconomic uncertainties and an ongoing inflationary environment.
Factors That Make the Stock Appealing
Diverse Product Portfolio: Mattel benefits from a robust assortment of products encompassing core brands, licensed brands and profitable product affiliations. Brands like Hot Wheels, which accumulate a notable share of popularity, have been the category leader in multiple product segments of the company for several years. During the second quarter of 2023, gross billings at the Hot Wheels brand rose 10% (on a reported basis) and 9% (at constant currency) to $315.2 million, year over year. The company has been witnessing an improving sales trend for Hot Wheels and is quite confident about the brand’s long-term prospects. Moreover, its initiatives of product portfolio expansion, along with other digital expansions, add to the growth trend.
Apart from Hot Wheels, MAT’s multi-year global licensing agreement with Disney has enabled it to lay down a variety of products, including Princess and Frozen branded line of products. This has driven the company’s second-quarter results and is consistently building momentum along with Monster High. Also, the company’s launch of a variety of toys and products related to the Barbie movie has created demand in the market, being sold out across major distribution channels from release to date. Furthermore, on Jul 25, 2023, the company renewed its multi-category licensing partnership with Warner Bros. Discovery Global Consumer Products. The product lines will include the DC Universe, Bat Wheels and Harry Potter, Fantastic Beasts, FRIENDS, among others.
Optimizing for Growth Program: MAT’s initiation of a new multi-year program, Optimizing for Growth, in 2021 has contributed about $106 million of incremental savings in the cost of goods in 2022. In the second quarter of 2023, the company generated $24 million in savings through the execution of the Optimizing for Growth program. The company is on track for the program to deliver its savings goal of $300 million by 2023. Through the cost-saving program, it remains focused on achieving cumulative cost savings, thus, enhancing margins.
IP-Driven Business Strategy: Mattel continues to make progress toward capturing the full value of its IP and transforming itself into a high-performing toy company. Moreover, it is strengthening its partnership with major entertainment companies, including Microsoft, Nickelodeon, Nintendo, Universal, Warner Bros and WWE. Moreover, the company stated progress on capturing the full value of its IP in its business verticals outside of the toy aisle. Its collaboration with Pokémon company and new multiyear agreement with Netflix for exclusive content, including three original, are just some of the strategies undertaken to expand the reach of the IP business strategy.
Mattel Creations continues to gain momentum by targeting the collector market (with new products) and international expansion efforts. In the second quarter of 2023, the company was able to successfully execute its strategy to expand its IP-driven toy business and entertainment offering.
Factors That Hinder Growth
Macroeconomic Uncertainty: Mattel is currently operating in an uncertain macro economy, which is much likely to impact its consumer demand. It remains cautious of the current scenario and owing to this, the company mostly reduced its 2023 guidance compared with the reported 2022 results.
Increased Inflation: MAT witnessed cost inflation and an unfavorable fixed cost absorption, along with inventory management costs, including higher close-out sales and inventory obsolescence expenses during the second quarter of 2023. It believes that this scenario is likely to continue for some time.
Some better-ranked stocks from the Consumer Discretionary sector are Royal Caribbean Cruises Ltd. RCL, Live Nation Entertainment, Inc. LYV and Guess?, Inc. GES.
Royal Caribbean presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
RCL has a trailing four-quarter earnings surprise of 28.5%, on average. The stock has surged 104.7% in the past year. The Zacks Consensus Estimate for RCL’s 2023 sales and earnings per share (EPS) indicates growth of 55.3% and 181.9%, respectively, from the year-ago period’s levels.
Live Nation presently sports a Zacks Rank of 1. LYV has a trailing four-quarter earnings surprise of 34.6%, on average. The stock has gained 5.2% in the past year.
The Zacks Consensus Estimate for LYV’s 2023 sales and EPS suggests rises of 21% and 57.8%, respectively, from the year-ago period’s levels.
Guess currently sports a Zacks Rank of 1. GES has a trailing four-quarter earnings surprise of 43.4%, on average. Shares of the company have increased 39.3% in the past year.
The Zacks Consensus Estimate for GES’ fiscal 2023 sales and EPS implies improvements of 3.7% and 9.9%, respectively, from the year-ago period’s levels.
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