Ahead of the much-anticipated release of the “Barbie” movie next week, which was directed by Greta Gerwig and stars Margot Robbie in the titular role and Ryan Gosling as Ken, Mattel Inc. (MAT, Financial) is hoping to cash in on consumers’ nostalgia.
CNBC’s senior retail reporter, Courtney Reagan, joined “Squawk Box” on Thursday to discuss how the El Segundo, California-based toy maker is taking advantage of the publicity surrounding the movie that features its most iconic doll.
With more than 100 retail partners selling Barbie merchandise, a lot of which is targeted toward adults, she highlighted the increase in internet searches for related products, including clothing, accessories and the dolls themselves. Overall, she said, the brand makes up one-third of Mattel’s sales.
“If the movie does not increase sales of Malibu’s most famous resident, branding experts tell me the licensing fees and the percentage of sales that Mattel will get from the merchandise is not only financially valuable, it leaves the blueprint for the toy maker’s strategy to generate new revenue streams for its other intellectual property,” Reagan said. “They have many other films in the pipeline, and they are hoping to see similar success.”
The company has also released a line of Barbies to go along with the film, providing additional sales opportunities.
Despite the sales increase the company is likely to see outside of the holiday season, Mattel does operate in a very cyclical sector that is impacted by inflation, recessions and other factors. As such, it is necessary to take a closer look at its underlying fundamentals and valuation to assess its prospects.
About Mattel
Founded in 1945 by Ruth Handler, Elliot Handler and Harold Matson, Mattel is known for its wide selection of toys and games. Among the company’s other well-known brands are American Girl, Polly Pocket, Hot Wheels, Fisher-Price, Uno and Matchbox.
It operates through four segments. The largest contributor to revenue in 2022 was Dolls at 38.30%.
Valuation
Partially boosted by the hype surrounding the movie, Mattel’s stock has risen around 23.09% year to date.
Sporting a $7.79 billion market cap, shares were trading around $22.08 on Thursday with a price-earnings ratio of 30.58, a price-book ratio of 4.02 and a price-sales ratio of 1.52.
Although the company’s key valuation metrics are high compared to the industry average, the GuruFocus Stock Comparison table, a Premium feature, shows it is cheaper than main competitor Hasbro Inc. (HAS, Financial).
Further, the GF Value Line suggests the stock is fairly valued currently based on its historical ratios, past financial performance and analysts’ future earnings projections.
At 70 out of 100, however, the GF Score indicates the company has poor performance potential. While it received a high profitability rank, its ratings for financial strength, value and momentum are more moderate and growth is low.
Despite having a robust Altman Z-Score of 3.29 and a moderate Piotroski F-Score of 6 out of 9, the company’s predictability rank of one out of five stars is on watch due to a decline in revenue per share over the past year. GuruFocus research found companies with this rank return an average of 1.1% annually over a 10-year period.
Earnings review
In April, Mattel reported its first-quarter financial results.
For the three months ended March 31, the company posted revenue was down 22% from the prior-year quarter to $815 million. It recorded a net loss of $106 million, a significant decrease from net income of $21 million a year ago. Ebitda was also negative at $64 million. Last year, it was positive at $117 million.
In a statement, Chairman and CEO Ynon Kreiz noted that while results were impacted by “retail inventory management,” its “underlying business performed well.”
“Mattel achieved growth and gained market share, per Circana,” he said. “The fundamentals of our business are strong. We expect to outpace the industry, gain market share and achieve our full-year guidance. We are well positioned to continue executing our multiyear strategy and create long-term shareholder value.”
For the full year, Mattel expects flat net sales compared to 2022 on a constant currency basis and earnings per share of between $1.10 and $1.20.
The company will release its second-quarter results on July 26.
Balance sheet
On its balance sheet, Mattel recorded $461.7 million in cash and cash equivalents as of the end of the first quarter. Total inventories equaled $961 million.
The company’s long-term debt stood at $2.32 billion, while shareholders’ equity came in at $1.94 billion.
Guru interest
A number of gurus are set to benefit from the upcoming movie as well.
With a 12.33% stake, PRIMECAP Management (Trades, Portfolio) is Mattel’s largest guru shareholder.
According to 13F filings for the first quarter, the stock is also being held by John Rogers (Trades, Portfolio), Mason Hawkins (Trades, Portfolio), the T Rowe Price Equity Income Fund (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies and the Edgepoint Canadian Portfolio, among many others.
Investors should be aware 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
Conclusion
Although Mattel’s financials have been somewhat lackluster in recent quarters, it will likely see a boost in sales due to the “Barbie” movie in the short term. While they will eventually decline again due to the cyclical nature of the business, the company has a solid strategy for generating new revenue streams from its intellectual property going forward.
Further, the stock appears to have some room to run despite its high valuation multiples.
