Mattel's Q4 Earnings Roll Past Expectations on Strong Performance in Wheels and Fisher-Price

Image source: Mattel

Mattel (MAT -4.41%) reported its fourth-quarter and full-year 2015 results after the market closed on Monday. The toy maker beat analysts' estimates on the top and bottom lines, thanks largely to strength in its wheels category and its Fisher-Price brand.

Shares of Mattel were up nearly 6% at the end of the after-hours trading session on Monday, which bodes well for a strong opening on Tuesday. Its stock has significantly underperformed rival Hasbro's (HAS -0.83%) over the one-year period through the close of regular trading on Monday, returning 13.2% vs. Hasbro's 37.7% (including dividends). Over the five-year period, Mattel's total return has lagged that of Hasbro's and the broader market's, due largely to falling sales for its iconic Barbie doll brand. 

Mattel's key quarterly numbers

GAAP = generally accepted accounting principles; *GAAP and adjusted EPS include a negative impact of $0.18 from changes in currency exchange rates. Data source: Mattel

• Revenue of $2.0 billion topped the $1.91 million that analysts were expecting. Adjusted EPS of $0.63 also beat Wall Street's estimates of $0.61.
• Adjusted operating and profit margins expanded since adjusted operating income and EPS increased more than revenue. 

Fisher-Price and North America drove results

• Fisher-Price was the only segment that experienced gross revenue growth on a reported basis. Mattel girls & boys and American Girl experienced a drop in revenue, while construction/arts & craft's revenue was flat.
• On a constant-currency basis, Fisher-Price and Mattel girls & boys grew revenue. 
• Regionally, North America's revenue expanded 4%, or 5% on a constant-currency basis, while international lagged with a 14% decline, which equated to 0% change on a constant-currency basis. Quarterly revenue was split 60% North America and 40% international.

Mattel's girls & boys (52% of total quarterly revenue)

• Quarterly revenue fell 7% on a reported basis, but eked out a slight gain of 1% on a constant-currency basis, to $1.137 billion.
• Within this category, Barbie sales (more details below) increased 0.5%, or 8% on a constant-currency basis, to $327.6 million, reversing a two-year long slide; Other girls sales plunged 36%, or 28% on a constant-currency basis, to $268.6 million; wheels sales accelerated 17%, or 26% on a constant-currency basis, to $271.8 million; and entertainment (which includes games) sales rose 7%, or 16% on a constant-currency basis.

Fisher-Price (29% of total quarterly revenue)

• Quarterly revenue increased a solid 8% on a reported basis, and a powerful 13% on a constant-currency basis, to $626.2 million.
• The baby and preschool toy brand had a strong year as well, with 2015 revenue rising 1%, or 7% on a constant-currency basis. It was Mattel's only segment that experienced growth on a reported and constant-currency basis in 2015. 

American Girl (12% of total quarterly revenue)

• Quarterly revenue decreased 14% on both a reported and constant-currency basis (this brand is only sold in North America) to $271.8 million.
• This revenue contraction is surely due to the increased competition in more recent years in the tall and moderate-to-high-end doll market, a niche that American Girl dolls long dominated. Two of the more notable competitors in this category are retail giant Toys R Us, with its Journey Girl, and Hasbro, with its Disney Princess dolls; both lines are considerably less expensive than American Girl dolls. (The license for the popular Princess dolls just transitioned from Mattel to Hasbro in 2016.) 

Construction/arts & crafts (6% of total quarterly revenue)

• Revenue was flat on a reported basis at $130.2 million, but up 11% on a constant-currency basis.

Barbie sales reverse slide -- but save the pink confetti for a bit

2016 brings three new shapes to Barbie -- petite, tall, and curvy. This is the first time in Barbie's 57-year history that shapes other than the original are available. Image source: Mattel.

Barbie sales were solid during the holiday quarter, which helped the world's most famous fashion doll reverse a two-year slide in sales, as previously mentioned. However, I'd hardly call Barbie sales "strong," as some headlines are proclaiming; The Pink One had an easy previous-year comparable since sales have been dwindling for years. Nonetheless, Barbie's results are encouraging for Mattel, which just last week shocked many -- and made the cover of Time -- when it announced that it was rolling out Barbies with three new body shapes. Certainly, the company is eons behind the times, but better late than never.  

It remains to be seen whether this quarter's results are a blip or the start of a trend, or whether the more realistic and diverse body shapes will help sales. Barbie sales accounted for 15% of Mattel's total quarterly revenue, so while she isn't carrying the company on her perfectly sculpted shoulders, as she essentially did years ago, she's still integral to Mattel's financial performance. For the full year, Barbie sales were down 10%, or 1% on a constant-currency basis.

What management had to say 
Said Mattel CEO Chris Sinclair in the press release:

We achieved our goal of stabilizing the business, with improved gross sales both in the quarter and for the full year. In addition, we drove significant momentum across the majority of our core brands, most of which saw stronger retail sales and shipping, and we continued to make headway in key emerging markets like China and Russia. Overall, we are pleased with our performance at this stage of our turnaround.

Looking ahead
Sinclair, who's been CEO for just a year, and his team have been doing a commendable job turning around Mattel's fortunes. That said, there are some especially tough challenges in 2016. Most notably, the company needs to fill the revenue gap created by the loss of the Disney Princess dolls license to Hasbro this year. Gross sales for this line in 2015 were about $450 million, according to information shared on the conference call, which represented about 8% of Mattel's total revenue.

CFO Kevin Farr provided a general outlook for 2016 on the call. In the first quarter, the company expects sales to be down slightly in constant currency and more so on a reported basis. Despite strength in several of its core brands and some planned new-product launches, Mattel doesn't expect to fully offset the loss of Disney Princess in the first quarter. However, it expects this headwind to moderate in the second half of the year due to the seasonality of its business. Farr stated that more detailed guidance would be released at the upcoming 2016 Toy Fair.