Image source: Mattel.

Mattel (NASDAQ:MAT) reported its first-quarter 2016 results after the market close on Wednesday. While the toymaker beat analysts' estimates on the top line, it fell significantly short on the bottom line, due largely to struggling Barbie sales, the loss of a lucrative Disney (NYSE:DIS) license to rival Hasbro (NASDAQ:HAS), and continued currency headwinds. 

Shares of Mattel dropped more than 7% in after-hours trading on Wednesday and were down 5.6% from Wednesday's close as of 11:45 a.m. Thursday.

Mattel's stock had returned 20.6%, including dividends, over the one-year period through Wednesday, significantly outpacing the S&P 500's 2.3% return and inching past Hasbro's return of 19.5%. Hasbro, however, will almost surely regain its one-year-return crown on Thursday. More important, Hasbro's the decisive long-term winner. 

Mattel's key quarterly numbers


Q1 2016

Q1 2015 

Growth (YoY)

Growth in Constant Currency (YoY)

Gross Sales

$962.1 million

$1.02 billion



Net Sales

$869.4 million

$922.7 million



Operating Income (GAAP)

$(49.1) million

$(54.5) million



Operating Income (Adjusted)

$(36.0) million

$(14.6) million



Earnings per share (GAAP)





Earnings per share (Adjusted)





GAAP = generally accepted accounting principles; GAAP and adjusted EPS include a negative impact of $0.13 from changes in currency exchange rates. Data source: Mattel

  • Revenue surpassed the $859.9 million analyst consensus, though the adjusted EPS loss was wider than the $0.08 loss Wall Street was expecting.

Fisher-Price once again drove results

  • Fisher-Price and the small construction/arts & crafts segment experienced year-over-year revenue growth on a reported basis, as well as in constant currency. Mattel girls & boys, by far the largest segment, and American Girl continued to lose revenue.
  • Regionally, North America's revenue decreased 2%, or 1% in constant currency, while international lagged at -11% and -1%, respectively, due to continued foreign exchange headwinds. Revenue was split 61% North America and 39% international.

Mattel's girls & boys (54.9% of total quarterly revenue)

  • Revenue fell 13% on a reported basis and 8% in constant currency to $527.9 million.
  • Within this category, Barbie sales (more detail below) decreased 3% to $141.1 million, though were flat in constant currency; "other girls" sales plunged 62%, or 58% in constant currency, to $268.6 million; sales for the wheels category (includes Hot Wheels and Matchbox brands) accelerated 2%, or 9% in constant currency, to $135 million; and entertainment (includes games) sales jumped 30%, or 36% in constant currency.

Fisher-Price (28.3% of revenue)

  • Revenue increased 3%, or 9% in constant currency, to $272.6 million.
  • The maker of baby and preschool toys was the only segment that experienced growth on a reported and constant-currency basis in 2015.

American Girl (9.7% of revenue)

  • Revenue decreased 12% on a reported and 11% on a constant-currency basis (this brand is only sold in North America) to $93.3 million.
  • Revenue has been sliding in recent years due to increased competition in the tall and moderate-to-high-end doll market, a niche that American Girl long dominated. Competitors have entered the space with less pricey offerings.

Construction/arts & crafts (6.4% of revenue)

  • Revenue rose 62% on a reported basis and 78% in constant currency to $61.9 million.

News of Barbie's "comeback" was greatly exaggerated

Mattel's introduction of three new shapes for Barbie in 2016 might have helped sales, but not enough for the fashion doll to post revenue growth. Image source: Mattel.

Barbie sales decreased 3%, though were flat in constant currency, as previously noted. The good news is that sales of the world's most famous doll held their own when we exclude the currency impact. The bad news is that Barbie's much-heralded (and exaggerated) "comeback" from last quarter didn't continue this quarter.

Barbie's holiday showing was solid, which helped Mattel reverse an uninterrupted two-year slide in quarterly sales of the fashion doll, as Barbie sales increased 0.5%, or 8% on a constant-currency basis, in the fourth quarter of 2015. While encouraging, one quarter does not make a comeback. For full-year 2015, Barbie sales were down 10%, or 1% in constant currency.

The Barbie brand is important because it still accounts for a sizable chunk -- nearly 15% in the quarter -- of Mattel's top line.

Barbie's best days are behind her, at least in the U.S. and other developed markets, in my opinion. (Consumers in the emerging markets are hungry for all-things Americana, though surely at lower price points.) Mattel complacently ignored years, decades even, of what seems to be valid criticism of Barbie. Meanwhile, other companies were listening to a sizable contingent of the consuming public and introduced doll options other than Barbie-type dolls. 

Goodbye Disney Princess and Frozen revenue sources
The "other girls" category plummeted 62%, or 58% in constant currency, because of Mattel's 2016 loss to Hasbro of the global license from Disney to produce and sell dolls based on Disney Princess characters and the immensely popular Frozen film.

Mattel's gross sales from this partnership totaled about $450 million last year, or about 8% of its total revenue. While we don't know how that revenue broke down on a quarterly basis, using 8% as a ballpark estimate would mean that the other girls category grew revenue, excluding the loss of this lucrative license.

Looking ahead
Mattel's earnings were much weaker than analysts expected -- and they were certainly factoring in the loss of the Disney Princess and Frozen license.

The company's notable challenges for 2016 include filling the revenue gap created by the loss of the Disney license and reviving sales of Barbie -- or filling any revenue gap created by continued falling sales of the iconic doll. It seems very likely that the popular Disney Princess and Frozen dolls will continue to cut into Barbie's turf, especially since Hasbro is expanding the line. 

CEO Chris Sinclair has been doing a solid job, though it remains to be seen whether he'll be able to fully turn around Mattel's fortunes. Hasbro stock remains the better toy company stock, as the company is firing on all cylinders. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.