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Mattel soars as cost cuts and Barbie sales deliver an earnings surprise

Barbie became a billion-dollar brand last year for the first time since 2014.
Barbie became a billion-dollar brand last year for the first time since 2014.
(Mark Lennihan / Associated Press)
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Mattel Inc. continued to shake off the liquidation of major customer Toys R Us Inc. and used aggressive cost-cutting to blow past Wall Street estimates during the fourth quarter, which included the crucial holiday shopping season.

The El Segundo toy company posted adjusted earnings of 4 cents a share — a surprise for analysts who had expected a loss of 14 cents a share.

Mattel reported the results Thursday afternoon, and its stock soared as much as 19% in after-hours trading.

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When Chief Executive Ynon Kreiz took the reins of the company in April, he set out a two-pronged strategy to turn around the ailing toymaker: First, cut costs and boost profitability, and then revive sales growth by creating more entertainment around properties such as Barbie and Hot Wheels.

Step 1 is paying off, and Step 2 is in the works. Key to the profit beat was a big expansion in gross profit margin to 46.6%, a marked improvement from 30.7% a year earlier.

The company accelerated a cost-cutting program aimed at administrative expenses, which it slashed by double digits this quarter.

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Barbie became a billion-dollar brand last year for the first time since 2014, with $1.09 billion in annual revenue.

The impact of Toys R Us’ demise isn’t totally gone: Mattel’s revenue fell for the sixth quarter in a row. It reported net sales of $1.5 billion for the holiday quarter, down 5% from the year-earlier quarter.

But the drag should dissipate in the second half of 2019, Kreiz said in an interview Thursday. “We aren’t claiming victory,” he said. “We have a long way to go, but we are tracking well.”

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Investors interested in the state of the toy industry will get more information Friday when rival toymaker Hasbro Inc. reports its fourth-quarter earnings.

In regular trading Thursday, before the earnings report, Mattel’s stock fell 1% to $12.36 a share. It had fallen more than 27% in the past year, even as the benchmark Standard & Poor’s 500 index had a 0.9% gain.

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