Raking in more than $350 million so far at the box office worldwide, the success of the "Barbie" is sure to boost the towline from the heightened publicity. The leadership of Mattel Inc. (MAT, Financial) has effectively intertwined its toy merchandise with media content, ranging from cinema to TV shows, and with Barbie being so beloved.
Just like Hasbro Inc. (HAS, Financial), the Mattel brand occupies space in the hearts and minds of millions of parents and children around the world. With a current enterprise value north of $10 billion, this iconic company could use a boost from the upcoming movie.
Mattel's products are sold in more than 150 countries around the world, with manufacturing facilities in the U.S., Mexico, China and Malaysia. The company's iconic brands continue to be popular, and the company is constantly trying to create new and exciting toys that will appeal to future generations.
Family of brands (not just Barbie)
Mattel has a long list of popular brands, including Barbie, Hot Wheels, Fisher-Price, and American Girl. The company also owns a number of other popular intellectual properties, including the rights to the DC Comics characters Batman and Superman.
While it has top-selling toys in each area, Dolls contribute the most to its revenue.
Within that segment, Barbie has had the most success. First introduced in 1959, she has been selling ever since and has become the world's most popular doll. Barbie has been featured in a number of animated movies and television shows, and has also been used to promote a variety of causes, such as girl power and diversity.
In 2022, the Barbie brand generated gross sales of $1.49 billion worldwide. This was a decrease from the $1.68 billion in gross sales the brand generated in 2021. With the new live-action movie starring Margot Robbie, I anticipate sales this year will be significantly higher.
Another popular brand is American Girl, a line of dolls and books that was first introduced in 1986. American Girl dolls represent girls from different historical periods in the U.S. They come with books that tell the stories of the dolls' lives.
American Girl is a smaller brand than Barbie, but it is still a significant contributor to Mattel's sales. In 2022, American Girl generated gross sales of $672 million. This was a decrease from the $710 million in gross sales it generated in 2021. The decline due to a number of factors, including the Covid-19 pandemic, which disrupted supply chains and led to shortages of some products.
Among Mattel's products that are geared more toward boys, but can be enjoyed by girls as well, are Hot Wheels. The line of toy cars, which were first introduced in 1968, are known for their speed and durability. They have been featured in a number of movies and television shows, and they have also been used to promote a variety of causes, such as racing and safety.
Hot Wheels remains Mattel's most popular brand. In 2022, the cars generated gross sales of $1.33 billion. This was a decrease from the $1.49 billion in gross sales the brand generated in 2021.
Finally, within its Infant, Toddler and Preschool segment is the Fisher-Price brand. It encompasses a line of toys for babies and toddlers that has been around since the 1930s. Fisher-Price toys are known for their educational value and their ability to help children develop their motor skills and cognitive abilities.
Fisher-Price was acquired by Mattel in 1993. Since then, it has been a major contributor to Mattel's sales. In 2022, the business generated gross sales of $1.03 billion worldwide. This represents about 20% of Mattel's total revenue.
Some of its other iconic brands include Uno, Monster High, Masters of the Universe and Thomas & Friends. The industry is dominated by four companies- Mattel, Hasbro, Nintendo (TSE:7974, Financial) and Activision (ATVI, Financial) - who control 25% of the very fragmented North American market, which makes up about 30% of the global market for toys.
Financial statements
Collectively, these added up to $2.5 billion in gross profit on $5.2 billion in revenue, but only $266 million in net income for the first quarter of 2023. To that end, Mattel’s executive team has initiated a cost reduction plan to counterbalance the challenging business conditions. With an investment of $165 million, they aim to decrease regular costs by $300 million each year, a portion of which is expected to increase its after-tax profits within the current fiscal year.
Currently, the company’s selling, general and administrative costs eat up 78% of the company's gross profit. So while its gross margins are impressive at 45%, Mattel desperately needs to stabilize its operating expenses. The challenges extend down to where value is created.
In 2014, the company generated $888 million in operating cash flow. Today, that number is less than half at $380 million. Of course, in 2013, Mattel’s revenue was higher by more than $1.2 billion and its operating profit was more than double. A return to those kind of numbers would likely send its stock price much higher as well.
After a long history of dividend payments, Mattel ceased its dividend in 2017 to refocus on building. Since then, the stock has struggled to make any progress to the upside, and that should be turning a corner. More importantly, while the company has $2.3 billion in long-term debt, it does have enough cash on hand - $461.7 million - to make acquisitions if the opportunities were available.
Final thoughts
The toy industry is likely to always be fragmented since the cost of bringing products to market is relatively low. Plus, marketing via social media and selling direct to consumer can now build huge businesses faster than ever.
The "Barbie" movie will not mean much for Mattel's bottom line on its own, but all the brand value that is created by once again being top of mind is huge. Tomorrow's earnings call should shed more light on what management expects going forward, but considering the success over the weekend at the box office, Mattel could be on track for a blockbuster second half of the year.
