Image source: Mattel.

Mattel (NASDAQ:MAT) reported encouraging third-quarter 2016 results after the market closed on Wednesday. Revenue and adjusted earnings per share were flat with the year-ago period. Thanks largely to strong Barbie sales, the toy maker has now closed the revenue gap left by losing the Disney (NYSE: DIS) Princess and Frozen license to rival Hasbro (NASDAQ:HAS) on Jan. 1. That business accounted for about 8% of Mattel's revenue last year. 

Shares of Mattel surged 6% on Thursday, bringing its year-to-date return to roughly 20%.

Mattel's key quarterly numbers 


Q3 2016

Q3 2015

Growth (YOY)

Growth in Constant Currency (YOY)

Net sales

$1.80 billion

$1.79 billion



GAAP operating income 

$317.4 million

$300.8 million



Adjusted operating income 

$324.1 million

$317.4 million



GAAP net income 

$236.3 million

$223.8 million



GAAP earnings per share (EPS)





Adjusted EPS





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

Revenue slightly beat Wall Street's consensus estimate of $1.77 billion, while adjusted earnings of $0.70 per share just missed the $0.71 analysts expected.

American Girl and Fisher-Price drove segment results 

American Girl, which makes moderate- to higher-end tall dolls, led segment performance, with its year-over-year sales rising 14% as reported and 15% in constant currency. This strong showing suggests Mattel has seen a bottom in the long quarterly year-over-year sales slide for this brand, though one quarter doesn't make a trend. Dependable Fisher-Price, which serves the baby and preschool markets, once again turned in a solid performance, with sales rising 6% on a reported basis and 8% in constant currency.

Construction and arts & crafts sales were flat with the year-ago period, while Mattel girls & boys, the largest segment, posted a sales decline of 5% as reported and 4% in constant currency.

Sales in North America increased 3% as reported and in constant currency, while international sales declined by 4% as reported and were flat in constant currency. Revenue was split -- 62.9% North America and 36.1% international.

Mattel's girls & boys (53.7% of gross revenue)

Gross revenue in the company's largest segment declined 5% year over year as reported and 4% in constant currency to $1.06 billion.

Within this category, Barbie sales jumped 16% as reported and 17% in constant currency to $349.7 million; "other girls" sales plunged 50%, and 46% in constant currency, to $161.6 million; sales for the wheels category (which includes Hot Wheels and Matchbox brands) sped up 6% as reported and in constant currency to $281.9 million; and entertainment (which includes games) sales rose 16% as reported and in constant currency to $267.9 million.

Fisher-Price (33.5% of revenue)

Revenue increased 6% year over year on a reported basis and 8% in constant currency to $665.1 million.

Construction/arts & crafts (6% of revenue)

Revenue was flat from the year-ago period at $118.6 million.

American Girl (6.4% of revenue)

Revenue jumped 14% as reported and 15% in constant currency to $125.5 million. As previously discussed, it appears that sales of the once-hot leader in the moderate- to high-end tall doll market might have reached a bottom. 

Barbie's comeback has legs

Mattel's introduction earlier this year of the Fashionista line, with three new shapes for Barbie, has been a catalyst for the brand's growth. Image source: Mattel.

Barbie sales -- up 16% as reported and 17% in constant currency from the year-ago period -- were encouraging. This makes two consecutive quarters now of year-over-year sales increases. In the first quarter, sales of the iconic doll declined 3% on a reported basis and were flat in constant currency, reversing course after a bounce in the fourth quarter of last year.

The Pink One won't be getting her queen-of-dolls tiara back yet. The doll category in general is doing well, with American Girl doll sales also up sharply, as discussed, and Hasbro's Disney Princess and Frozen dolls performing well. (Hasbro doesn't disclose sales figures for these lines, but said in its recent earnings call that sales are ahead of its expectations and higher than last year when Mattel made and marketed these dolls.)

The Barbie brand accounts for a sizable portion -- 19.5% in the quarter -- of Mattel's top line. However, it's even more important than this number suggests because it sports a higher profit margin than Mattel's overall product portfolio. 

Looking ahead 

Mattel's Q3 results suggest the company's turnaround is on track, though the critical holiday quarter will be what makes or breaks the company's year, as is typical to varying degrees with most retailers.

The toy maker's primary near-term challenges are maintaining growth momentum for Barbie and American Girl.

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