What happens when you have a house full of bored kids during nationwide quarantines? For Mattel (MAT), the answer is massive sales of its perennially popular Barbie dolls and other toys, explains growth stock expert Mike Cintolo, editor of Cabot Top Ten Trader.
Mattel's top line grew in Q3 for the first time in a year, driven by a substantial sales increase in North America as customers splurged on games, action figures and building sets. (As with so many retail outfits, a lot of the surge came online, with e-commerce sales increasing 50%.)
But it was the company’s doll category that really stole the show (up 22%), with Barbie sales rising 30% in the September quarter. The iconic doll was also the number one toy in the U.S. through most of Q3, as well as the top toy property globally.
Mattel has been a slow-moving turnaround situation for a couple of years, and the first half still showed lackluster results, but Q3 shows that things are on track—profitability for Mattel is surging, with per-share earnings of 95 cents easily beating the consensus estimate of 57 cents.
Total revenue meanwhile was $1.6 billion, up 122% sequentially and 10% year over year. Management reports seeing “tremendous demand” for the company’s products and sees the momentum continuing into the critical fourth quarter (typically make-or-break for toy makers).
Retail inventories remain low, and the firm believes it will achieve sales growth in Q4 — thanks partly to an early start to the holiday shopping season. Analysts predict a 6% top-line increase and a 109% bottom-line bump for Q4, and see additional growth in the next two quarters.
Longer term, Mattel is committed to a strategy of growing its own intellectual property across the gaming and entertainment segments, with a focus on e-commerce and films (Mattel Films has 10 features in development, including titles based on Barbie, Hot Wheels and Thomas & Friends). For a "boring" old company, it's a pretty solid story that has the wind at its back.
A nice 10-week consolidation led to a breakout in October and a nice pop above $14 after Q3 results were released. We wouldn’t chase it, but a dip of a few dimes toward the 25-day line (now nearing $13) would be tempting.
