Even the success of the “Barbie” movie could not save the end-of-year outlook for Mattel, as the company grapples with falling annual sales amid a wide-ranging decline in the toy industry.
Net sales rose 9% from the prior year to $1.9 billion, as stepped-up purchases of Barbie dolls lifted the company to its first quarterly sales increase this year.
Still, net income fell 50% on a yearly basis to $146 million this quarter. In the nine months ended September, Mattel’s net income fell 82% to $67 million, compared to the period last year, and earnings per share fell 48% to $0.40. Even with stronger quarterly profits and greater margins compared to 2022, revenue has suffered on an annual basis thanks to supply chain jams, inflated prices and muted demand for toys across the industry.
The company’s end-of-year guidance indicates sales will be comparable to the prior year, sticking to a cautious outlook that the “Barbie”-related bounty could not offset.
“We are operating in a challenging macroeconomic environment with higher volatility that may impact consumer demand,” said chief financial officer Anthony DiSilvestro. “The guidance considers what the company is aware of today, but remains subject to further market volatility, unexpected disruptions and other macroeconomic risks and uncertainties.”
Mattel, and the toy industry at large, is still grappling with supply chain issues that began in late 2021: shipping times between China and the U.S. increased, leaving store shelves empty when homebound customers were more likely to buy toys. As retailers began to increase orders in earnest in 2022, inflation also creeped higher, leading to an industry wide slowdown that continues to plague the toy industry well into 2023.
“Toy demand has been softer, and that’s going to put some pressure on Mattel and Hasbro sales in the fourth quarter,” said Jim Chartier, an analyst at Monness, Crespi, Hardt and Co. “The other question is when will demand industry-wide stabilize? I don’t know that anybody knows the answer.”
Hasbro has struggled much more than Mattel has this year. The company’s net income fell over 100% to a loss of $169 million, its latest earnings call revealed.
Against a grim outlook for the toy industry, “Barbie” was a welcome and necessary boost to Mattel’s earnings this quarter and is expected to play a big role in anticipated holiday spending amid an otherwise cloudy fourth quarter for the industry.
“2023 was a tale of two halves. First half, there was a lot of inventory drawdown. Second half is really about Barbie and the benefit that you’re getting there,” said James Hardiman, a Citi analyst, about the company’s ability to lap Barbie-related revenue for this year, on the company’s earnings call.
Nevertheless, Mattel reported steady growth across its major categories for the quarter: Dolls grew 27%, driven by Barbie and the renewed Disney license giving a boost to the Princess and Frozen lines. Hot Wheels continued its streak, growing for the sixth year in a row and pulling the Vehicles category higher. The only categories that fell were Fisher-Price and Challenger.
Leadership stayed tight-lipped about exact dates and schedules for Mattel Films’ next projects post-Barbie, which include a Netflix series about Hot Wheels and new episodes for the animated series Monster High.
Mattel has underperformed the S&P 500 index for most of this year, still recovering from a year and a half of supply chain jams and a tough retail environment.
Mattel shares fell 9.7% when markets opened Thursday, closing at $18.58 by end of day – their lowest since mid-June. The company has underperformed the S&P 500 for most of this year, overtaking the index for a brief three months around the release of “Barbie” before dipping back down after it reported results Thursday.
The company warned that good news from “Barbie” sales might be offset by continuing toy industry declines and uncertainty around customers’ spending appetites, even as the company gains market share and reins in its debt.
“The things that Mattel can control are going well, but there are increasingly concerning macro and consumer issues that are making for a tougher holiday season,” said Eric Holder, an analyst at Roth MKM.
Other big news from the quarter included the departure of Richard Dickson in July, who left his role as president and chief operating officer to become CEO at Gap Inc. The company currently has no COO, instead splitting the position’s duties between Lisa McKnight, chief brand officer and Josh Silverman, chief franchise officer.