It's been a difficult few years for shareholders of Mattel (NASDAQ:MAT). Once the leading toymaker, the company has fallen on hard times, with several developments conspiring to make Mattel a shadow of its former self. A reversal of fortunes began with falling sales of its flagship Barbie and culminated with the loss of the contract to produce toys for Disney's Princess and Frozen lines. The struggles turned downright dire last year when Toys R Us disappeared from the retail landscape, leaving unpaid debts in its wake. Mattel's recent revolving door of CEOs hasn't helped either.

Mattel is scheduled to report the results of its 2018 second quarter on Wednesday, July 25, after the market close, and even as investors hope for the best, they're prepared for the worst. Let's take a look at how the company did last quarter and review what investors should watch for when Mattel reports its earnings.

A number of dolls from Barbie's Fashionista's collection posed on several tiers.

Barbie has expanded its Fashionistas line. Image source: Mattel.

Turning the corner?

For the first quarter, Mattel's net sales of $708 million fell nearly 4% year over year, generating a loss per share of $0.90, down 172% from the prior-year quarter. Even though it was a horrendous performance and included charges related to the Toys R Us liquidation, it still wasn't as bad as many had feared. 

Barbie sales were a bright spot, soaring 24% year over year, while sales of Hot Wheels revved up, growing 15% compared to the year-ago quarter. That wasn't enough to make up for the dismal results of other brands, with American Girl sales plunging 21% year over year, while Fisher-Price and Thomas and Friends went off the rails, declining 8%.

Prior to last quarter's report, Mattel announced another in a line of recent CEO departures, with Margo Georgiadi handing over the reins after just over a year to Ynon Kreiz, who formerly helmed Disney's Maker Studios and Fox Kids Europe. Investors will be looking for insight into the new CEO's vision for Mattel's future.

The plan

Investors will also be looking for signs that the long-promised turnaround is finally taking hold. This time last year, Mattel held an investor day, where it laid out its plan to get the flailing business back on its feet. The company slashed, then eventually eliminated, its dividend in order to free up funds for its recovery.

Mattel initially said it would deliver $200 million in cost savings to invest in initiatives to upgrade its information-technology systems, as well as make changes to its supply chain. These moves were designed to improve inventory management, decrease the time it took to bring new toys to market, and provide deeper customer insights. The company later revised its projections, saying it would cut more than $650 million in costs over a two-year period. Keep a eye out for updates on those expected cost savings.

The company had also previously identified three problems that it sought to correct in aid of its recovery. Mismanagement of the Monster High and American Girl franchises, excessive focus on short-term financial results that hurt its long-term prospects, and failing to adequately plan for the future. Investors should look for updates on how the company is correcting those shortcoming and if its making progress toward its goals.

A long road ahead

In light of the challenges the company is facing, Mattel opted not to provide any further guidance until it gets its house in order. For their part, analysts' consensus estimates are guiding for revenue of $855 million, which would represent a decline of 12% year over year, producing a loss per share of $0.09, compared to a $0.16 loss in the year-ago quarter. 

Frankly, after all the company has been through, I think those expectations may be a bit ambitious. As a longtime Mattel shareholder, I hope I'm wrong -- but I'm not holding my breath.