Shares of Mattel (MAT +0.68%) plunged on Wednesday after the toy manufacturer's fourth-quarter earnings fell short of investors' expectations.
By the close of trading, Mattel's stock price was down 25%.
Even toymakers have to pay tariffs. Image source: Getty Images.
Declining margins
Mattel's net sales rose 7% year over year to $1.8 billion. The gains were driven by growth in the company's Hot Wheels and action figure categories.
However, higher tariff-related costs dented Mattel's profitability. The toy seller found it challenging to pass on those costs to cash-strapped consumers via price hikes.
Worse still, the uncertainty surrounding the implementation and timing of tariffs disrupted Mattel's ordering processes. That made proper inventory management more difficult, which ultimately forced Mattel to offer discounts to clear excess inventory.
These factors drove a 4.8 percentage point decline in Mattel's gross margin to 45.9%.
NASDAQ: MAT
Key Data Points
All told, Mattel's net income decreased by $35 million to $106 million.
Moreover, the company's adjusted earnings per share of $0.39 came in well below Wall Street's estimates. Analysts had expected per-share profits of $0.55.
A concerning forecast
Looking ahead, Mattel expects sales growth of 3% to 6% in 2026. Yet management warned that the company's adjusted earnings per share could fall as much as 16%.
"We are making strategic investments that will impact the bottom line this year but are intended to accelerate growth in top and bottom lines in 2027 and beyond," CEO Ynon Kreiz said.
