Mattel (MAT) CEO Ynon Kreiz has brought stability — and importantly for investors, profitability — to a toymaker that was struggling for direction before his arrival in April 2018.
Kreiz — who has an extensive content creation background being the former CEO of Maker Studios (sold to Disney in 2014) — says investors should get used to both of those things when thinking about the maker of Barbie dolls and Hot Wheels cars.
“In many ways, it has been a journey,” Kreiz tells Yahoo Finance. “This is not a one-off. We've had a few consecutive quarters of strong performance and of beating expectations. And, clearly the strategy is working. We're seeing momentum. Our brands are resonating. Our product is showing a lot of innovation. And with the momentum we are seeing, growing market share, growing our catalog, growing the portfolio as a whole, achieving growth in every region in constant currency and broadly across our portfolio in the third quarter, it’s very telling.”
Indeed it is telling.
The turnaround at Mattel continued to play out in the third quarter as it sold large volumes of Barbies, board games, action figures and plush Baby Yoda dolls to a quarantined world of kids.
Third quarter net sales rose 10% year-over-year to $1.6 billion. Adjusted operating profits surged 131% from a year ago to $401.3 million. Worldwide doll sales led by the iconic Barbie rose 22% from last year, and marked Mattel’s best-performing business segment. Barbie sales alone were up 30%. Sales worldwide for the action figures, building sets, games and other segment rose 14%.
Worldwide sales for vehicles — powered by the Hot Wheels brand — improved 6%. Global sales for the infant, toddler and pre-school business fell 6%.
Mattel’s adjusted operating profits year-to-date have clocked in at $242.7 million versus $46.9 million a year earlier. Not only have profits been boosted by a sizable ramp in sales, but Kreiz’s cost cuts are finally gaining steam.
The comeback in Mattel’s business amidst the pandemic hasn’t been lost on Wall Street. Shares have spiked 65% over the past six months compared to a 25% advance for the S&P 500. Rival Hasbro’s stock is up 21% during that same six-month stretch.
Now it all boils down to sustained execution and a good holiday season for Mattel. If it could pull that off, the stock could have further room to run.
“We expect Mattel’s stock action from here will be tied to the performance of its power brands during the holidays — Barbie, Hot Wheels, and Fisher Price — across retail demand and order flow. Cost actions remain a positive in both degree & direction. We are encouraged by positive point-of-sale trends carrying into October but also realize holiday demand is shifting earlier which benefits October point-of-sale,” wrote Jefferies analyst Stephanie Wissink in a note to clients.
Wissink rates Mattel’s stock at a Buy with $15 price target.
Kreiz is staying upbeat into Black Friday and the holidays.
“We believe we're very well-positioned heading into the holiday season. The toy industry as a whole grows and continues to demonstrate its resilience in challenging economic times,” Kreiz says.
Kreiz is also looking beyond the holidays and into 2021, when his studio experience is expected to be seen via numerous Mattel-toy themed films and TV shows. For instance, the company recently inked a deal with World War Z filmmaker Marc Foster to direct a Thomas & Friends film. Kreiz says Mattel now has 10 film projects in development, which could make money on their own but also help drive toy sales.
The company’s TV projects could also pop up more on Netflix, too.
“We also expect to be on Netflix. There are two important series based on ‘Masters of the Universe’" this incredible mythology that we're launching next year on Netflix, as well as other projects, such as the ‘Barbie Dreamhouse Adventures.’ This is a movie, a made-for-Netflix movie that we released in September, that out of the gate was among the top 10 most popular movies on Netflix, as well as many other great products that would be on streaming platforms,” adds Kreiz.
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