Last year was a brutal one for Mattel (NASDAQ:MAT) investors, causing many to take their toys and go home. The once-leading toy maker, which was already in the midst of a turnaround, fell victim to the closure of Toys R Us last summer, making matters even worse. The stock lost more than a third of its value in 2018, but investors are upbeat about the company's prospects, driving Mattel's stock up 23% so far in 2019.

Shareholders will get a clearer picture of the company's progress when Mattel reports the financial results of its fourth quarter after the market close on Thursday, Feb. 7. Let's recap the company's third-quarter results and look at a few recent announcements to see if they provide any insight into what shareholders can expect when Mattel reports earnings.

Two girls laughing and playing with American Girl dolls, while their mother smiles in the background.

Image source: Mattel.

A surprise profit

For the third quarter, Mattel reported net sales of $1.4 billion, a decline of 8% year over year, and down 6% adjusting for changes in exchange rates. This came in short of analysts' consensus estimates for $1.5 billion. The bigger story, however, was its operating income of about $130 million, an increase of 41% year over year, as the company's cost-cutting initiatives took hold. This resulted in adjusted earnings per share of $0.18, up 100% from the prior-year quarter, and just missing expectations of $0.20. Mattel's gross margin also improved, coming in at 42.6%, a significant improvement from the 41.5% the company achieved during the same quarter last year. The closure of Toys R Us resulted in a 10% decline in U.S. sales and a 2% hit to international revenue.

Even in the light of slumping sales, Mattel saw the silver lining, saying that the company had retaken the title of No. 1 toy company globally for the four months up through September, according to market research company NPD.

Mattel is on track to hit the $650 million run rate in cost savings by the end of 2019. Management said it also expects to cross the $500 million mark on expense reductions to close out 2018.

Current events

Mattel announced earlier this year that it had reached a worldwide licensing agreement with South Korean boy band BTS (aka Bangtan Sonyeondan, or "Beyond the Scene"). Mattel will produce dolls, collectible figures, games, and more for the chart-topping group. 

While not a household name to U.S. audiences, the K-pop (Korean pop) band is so popular in South Korea, its fan club has a waiting list and those wishing to join are required to buy a certain amount of merchandise before they are permitted entry. The group's most recent album, Love Yourself: Tear, debuted at No. 1 on the Billboard album charts and went gold in the U.S. The pop sensation is also selling out tours across the globe -- so this is a pretty decent signing for Mattel. 

The other noteworthy news is that Mattel just announced a partnership with Warner Bros., a division of AT&T, to develop a live-action motion picture based on Mattel's Hot Wheels toy brand. This follows the recent announcement that the two will collaborate on a feature film based on Barbie, starring and co-produced by Academy Award-nominated actress Margot Robbie. 

While these announcements won't have any immediate impact on Mattel's results, they could help move the needle in upcoming quarters.

Check out the latest Mattel earnings call transcript.

A variety of Barbie dolls dressed in outfits created by fashion designer Christian Siriano.

Image source: Mattel.

A look ahead

In the wake of its ongoing challenges, Mattel didn't provide any specific guidance for the recently completed holiday quarter. It did give a few broad strokes, however. The company expects gross margin in the high 30% range for the full year. Mattel's improving financial position to end 2018 is the result of easier comps due to writedowns last year related to Toys R Us, as well as the company's ongoing cost-cutting measures bearing fruit.

In the absence of specific metrics, we can turn to Wall Street, though we don't want to be lulled into its short-term mindset. Analysts' consensus estimates are calling for revenue of $1.44 billion, a decline of 11% year over year, and a loss per share of $0.16, much improved from the loss of $0.72 in the prior-year quarter. 

While the Toys R Us bankruptcy added insult to injury, Mattel has been sticking to its plan to reduce costs and eliminate bureaucracy to become a leaner, more nimble organization. Those initiatives are taking hold and resulted in a surprise profit last quarter, while setting up the company for a brighter future.

Investors will soon learn if that recovery is still on track when Mattel reports the results of its important holiday quarter after the market close on Thursday, Feb. 7.