Mattel Inc., the renowned toy maker known for its iconic Barbie dolls, is implementing cost-cutting measures and a stock repurchase program in response to anticipated weaker demand in the toy industry. Despite a successful year in 2023 with the release of the “Barbie” movie and a subsequent surge in doll sales, Mattel is preparing for a decline in sales and a shift in consumer spending patterns towards experiences and services.
To address these challenges, Mattel plans to achieve annualized savings of up to $200 million by 2026 through a new cost-cutting initiative. This includes the closure of a plant in China. However, the company remains confident in its financial position and announced a $1 billion share-buyback program, emphasizing its strong balance sheet.
The decision to cut costs aligns with a trend seen across various industries as companies aim to increase profit margins following concerns of an impending recession. Mattel’s main rival, Hasbro Inc., also announced layoffs in December as part of its cost-cutting efforts. The toy industry has been affected by inflation-driven price hikes for basic necessities, leading retailers to adopt a cautious approach when stocking their shelves after previous experiences of overstocking unwanted toys and electronics.
During Mattel’s fourth-quarter earnings call, CEO Ynon Kreiz expressed optimism regarding the future of the toy industry. He anticipates a decline in 2024, albeit at a lesser rate than the previous year, attributing this decline to a lighter theatrical-film slate and consumers’ shift towards experiences and services. Chief Financial Officer Anthony DiSilvestro acknowledged that doll sales are expected to decline this year as the benefits from the “Barbie” movie wear off.
Despite the anticipated challenges, Mattel reported impressive financial results for the fourth quarter of 2023. Net income reached $147.3 million, or 42 cents per share, compared to $16.1 million, or 4 cents per share, in the same quarter of the previous year. Adjusted for various factors, Mattel earned 29 cents per share, exceeding analysts’ expectations. Sales also rose by 16% to $1.62 billion.
Mattel’s success can be attributed to its strong execution of its toy strategy and significant progress in the entertainment sector, including film, television, digital, and publishing. The company aims to leverage its intellectual property-driven toy business and expand its entertainment offerings. Mattel’s executives have expressed interest in creating more films based on their popular toys and transforming “Barbie” into a film and TV franchise.
In addition to these developments, activist investor Barington Capital recently acquired a stake in Mattel and suggested exploring strategic alternatives for its Fisher-Price and American Girl businesses. As a response, Mattel announced that American Girl would be integrated into its North America commercial organization.
Analysts from Bank of America highlighted potential shipping disruptions in the Red Sea as a risk that could directly impact companies like Mattel and Hasbro. However, Mattel stated that it has not experienced any material impact from these disruptions or increased shipping costs.
Despite the challenges faced by the toy industry, Mattel’s stock has performed well, with a 24.7% increase over the past 12 months.
In conclusion, Mattel Inc. is taking proactive measures to address anticipated weaker demand in the toy industry by implementing cost-cutting measures and a stock repurchase program. While the company expects a decline in doll sales this year, it remains confident in its financial position and aims to leverage its intellectual property-driven toy business and expand its entertainment offerings. With successful financial results for the fourth quarter of 2023 and a strong stock performance, Mattel is positioning itself for future growth and adaptation in an evolving market.
