Mattel Earnings: Toy Demand Proves Relatively Resilient in Uncertain Economic Times

We do not plan any material change to our $25 per share fair value estimate for narrow-moat Mattel after considering second-quarter results and view shares as attractive. The firm clocked a second-quarter sales decline of just 1%, displaying another quarter of top-line stability, and adjusted operating margin expanded 200 basis points to 8.9%. Most stunning was the gross margin, which was up a whopping 430 basis points, with two thirds of the gain stemming from cost savings initiatives, deflation, and lower promotional spending (partially offset by higher operating expenses). Gross billings of Barbie fell 6%, lapping the film’s release last year; Hot Wheels’ billings rose 4%; and those of Fisher-Price increased 10%. We think a focus on innovation within key brands in Mattel’s portfolio has continued to steer it toward further improvements in its financial performance.