When Americans think of Barbie, the first thing that comes to mind is the iconic blonde doll, her Dream House, her many careers, and eventually, Ken. What we don't think of are South Korean boy bands. But a line of Barbie dolls based on K-pop superstars BTS has been selling like hotcakes, especially in Asian markets. And that was great news for Mattel (NASDAQ:MAT), which delivered a nice earnings beat last week. In this segment of the Nov. 1 podcast, Motley Fool Money host Chris Hill and Motley Fool senior analyst Ron Gross also discuss the operational moves Mattel has been making, its financials, its outlook and more.
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This video was recorded on Nov. 1, 2019.
Chris Hill: Shares of Mattel up more than 15% this week after better-than-expected results in the third quarter, thanks, Ron, to, of course, Barbie. It's always Barbie. Barbie is always getting it done for Mattel.
Ron Gross: You know, it's actually interesting, most of the strong sales were international, especially in Asia. Lifted by sales of dolls based on Korean boy band BTS. I must admit, I've never heard of BTS.
Hill: You're not the target demo.
Gross: [laughs] Good point! You know, call me nostalgic, but it was nice to see Barbie up 10% and Hot Wheels up 25%, that kids are still playing with toys. That sounded nice to me. There was some weakness. Their infant, toddler, and preschool divisions were weak. That that offset some of the strength. Revenues were only up 3.1%, but it was still significantly better than expected. You got some widening margins due to cost-cutting, which led to an adjusted earnings per share increase of 44%, which is a really strong number for a company that has had a tough road of late. Relatively new CEO has done a pretty good job of stabilizing that core doll business, and then also moving into entertainment with feature-length films and shows and amusement parks, a lot of what Hasbro is doing as well.
Interestingly, they saw no impact from tariffs, whereas Hasbro spent a significant amount of time focusing on the impact that tariffs had on their business for the quarter. That's an interesting difference.
Hill: The story with Mattel is one that we've seen play out with different companies in different industries. By that, I mean, you've got several divisions. One of them continues to deliver quarter after quarter, and maybe another doesn't get it done quarter after quarter. Yum! Brands, certainly, with Pizza Hut. That's been the story for literally years now. When you see a business like that, does the activist investor part of your history kick in and really urge them to either double down on what's working or just cut their losses with the other division?
Gross: Absolutely. If you see a division consistently having declining revenue, or not being profitable, something has to change. Sometimes the easiest thing to do is just shut it down. I do just want to mention, I'd be remiss if I didn't, the company also resolved a whistleblower complaint regarding their accounting. They're going to have to restate some 2017 accounting quarters, but there's actually no material impact at all. But, the CFO, who was also relatively new, is leaving the company.