Mattel Isn’t Playing Around. The Stock Is Well-Positioned to Prosper in a Recession.

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Mattel’s Barbie Extra toy car.

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Patrick T. Fallon/AFP/Getty Images

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Expectations are high for Mattel when it reports earnings this coming week. It may just be able to beat them.

Mattel stock (ticker: MAT) hasn’t had a bad year—far from it. The shares are relatively unchanged from where they started 2022. That’s thanks to the perception that toys are recession-proof, as well as hopes that the company will be able to sidestep the inventory problems that have hit many consumer-goods makers and the margin pressures affecting, well, everyone.

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Mattel gets a chance to test all that when it reports earnings on Thursday. The numbers aren’t particularly big—Mattel is expected to report a profit of six cents a share, an improvement from the three cents it reported during the same quarter the year before, while sales are expected to be up 7%, to $1.101 billion , from $1.026 billion. Expectations may actually be higher, however. JP Morgan‘s
Megan Alexander notes that investors might be anticipating earnings closer to 10 cents a share, something that would normally give us pause, but the hopes might be justified.

For one thing, toy companies don’t appear to have the same inventory glut that other consumer-goods companies do, writes UBS analyst Arpine Kocharyan. Yes, Target (TGT) and Walmart (WMT), which make up about 35% of sales for Mattel and Hasbro (HAS), have acknowledged that they need to mark down goods to eliminate unwanted inventory.

But Kocharyan doesn’t think toys have been affected. “We believe the toy category continues to be strong, and our separate trade checks indicate that, outside of some market specific situations, there is no broad inventory glut issue for toys at the end of the quarter,” she writes.

Mattel should also be able to maintain its earnings guidance of $1.42 to $1.48, even if an increase is unlikely. Over the next 12 months, movie tie-ins—including ones for Minions: The Rise of Gru, Lightyear, Top Gun: Maverickand Trolls 3—should help drive demand, while next year Mattel will also see the return of Walt Disney‘s
(DIS) Princesses, which Hasbro took over in 2016,

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At the same time, Mattel may be able to keep its margins from slipping this year, and perhaps even grow them in 2023. In upgrading Mattel stock this past week, Goldman Sachs analyst Michael Ng noted that shipping costs have dropped 26% this year, while plastic costs are also declining. Mattel is also set to raise prices in 2022, as it did in 2021.

If he’s correct, gross margins should remain near 47%, and Mattel’s guidance should remain intact. Ng’s $31 price target suggests that Mattel could gain 43% from Friday’s close of $21.63.

Write to Ben Levisohn at [email protected]


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