Mattel Earnings: Successful Holiday Season Contingent on Continued Momentum in Barbie and Wheels

Narrow-moat Mattel's third-quarter sales results were in line with our $1.9 billion forecast, as Barbie and Hot Wheels (together 46% of gross billings) again carried the load, with worldwide gross billings 16% and 22% higher, respectively. Fisher-Price (1% decline), American Girl (down 13%) and the challenger brands (up 1%) continue to weigh on sales performance, although we note all three had sales that improved sequentially. On the bottom line, adjusted EPS of $1.08 beat our estimate by more than $0.20, largely attributable to a 51% gross margin, which was up 270 basis points, benefiting from mix (170 basis points, helped by Barbie-related sales), price (140), and cost savings initiatives (130) partially offset by fixed costs. With some operating leverage on 9% sales growth, Mattel was able to achieve a 26% operating margin, a high-water mark.