Barbie isn't just a doll anymore. She's now the star of her own movie, and that movie is taking the world by storm. Barbie exploded onto the scene last weekend, scoring the biggest opening of the year. And the movie just flew past the milestone of $500 million at the global box office.
Mattel (MAT -0.60%), the maker of Barbie, was counting on the project to showcase its new strategy of maximizing the potential of its intellectual property. The company aims to do this by putting its top brands in places beyond the toy aisle. This could be a winning move for Mattel over time -- and for shareholders. Let's find out why.
Source: Mattel.
Perfect timing
This venture into filmmaking has come at the perfect moment, a time when Mattel could use a bit of a boost. Over the past couple of quarters, retailers have struggled with excess toy inventory. That comes as shoppers feel the pressure of higher inflation and have been more careful about discretionary purchases. In the second quarter, Mattel's net sales fell 12% to about $1 billion, and net income and operating income declined as well.
Importantly, though, the company saw improvement from the first quarter of the year and said the worst of the inventory problems have passed. Mattel also expressed optimism about sales during its key period, the holiday season.
The company grew free cash flow in the quarter and gained market share in its three leading areas, including the doll category.
MAT Free Cash Flow data by YCharts.
And that brings us back to the subject of Barbie. Barbie is the No. 1 doll globally, according to research firm Circana. But that hasn't been enough to keep growth going through a difficult economy. And it's important to remember Barbie faces competition from not only other dolls but other forms of entertainment.
Extending the reach of top brands
Enter Mattel's new strategy. The idea is to extend the reach of top brands like Barbie through films, gaming, live events, product partnerships, and more. This could capture sales from people, like adults, who still love Barbie but don't necessarily play with the dolls anymore. Mattel signed more than 165 product partnerships linked to the movie. And, earlier this year, the company said all licensing deals related to Barbie and other projects will boost margins.
Mattel also has released its own line of Barbie dolls and other products, and many have sold out. But the sales opportunity is far from over. The company plans on launching another batch of Barbie products in the second part of the year. And this takes us closer to the holiday season, meaning Mattel will have a lot of potentially popular products to fill the aisles during a crucial time for earnings.
The big question is whether the Barbie craze will offer gains through just a couple of quarters or whether it will push Barbie the doll into a whole new era of growth. It's too early to answer that right now. But, in either case, Mattel's move to maximize the power of its brands is a smart one.
The company aims to do the same with other top brands, such as Hot Wheels. For example, Hot Wheels Unleashed 2: Turbocharged, a sequel to a popular digital game, launches this fall. And prime time TV show The Hot Wheels Ultimate Challenge has done well in the rankings.
Mattel stock price
All of this won't push Mattel's shares into the stratosphere overnight, of course. But over time, this expansion could drive revenue higher and help the company through periods of softer toy demand.
So, if you don't already hold Mattel stock, should you buy it now? Today, Mattel shares trade for less than 20 times forward-earnings estimates. That's reasonable considering Mattel's portfolio of top brands and its plan to use those brands to spark growth.
It's also important to consider earnings generally have climbed since Ynon Kreiz took over as chief executive officer in 2018.
MAT Net Income (Annual) data by YCharts.
And Mattel showed confidence in its own future by resuming share buybacks this year. All of this means things are looking bright for growth ahead. So today, Barbie is winning at the box office, but over time, shareholders could be the biggest winners of all.
