Mattel was a detractor in the quarter, with the stock falling due to an unexpected $150 million (15% of EBITDA) in incremental spending on initiatives including mobile gaming and direct to consumer marketing. CEO Ynon Kreiz cited a one-year payback on this spend, but the market remains in show-me mode, leading to a decline in price proportionate to the 2026 earnings per share guidance reduction. Despite this, the company committed to $1.5 billion in share repurchase over the next 3 years, equating to 33% of shares outstanding at today’s price. 2026 should have demonstrated the true FCF power of Mattel given traction on IP initiatives, but delays have impacted this outlook.

Mattel was a detractor in the quarter, with the stock falling due to an unexpected $150 million (15% of EBITDA) in incremental spending on initiatives including mobile gaming and direct to consumer marketing. CEO Ynon Kreiz cited a one-year payback on this spend, but the market remains in show-me mode, leading to a decline in price proportionate to the 2026 earnings per share guidance reduction. Despite a commitment to $1.5 billion in share repurchase over the next 3 years, which equates to 33% of shares outstanding at today’s price, the company faced challenges with missed expectations in 4Q results, particularly in the US.

Mattel's Chairman and CEO, Ynon Kreiz, has shown confidence in the company by purchasing 65,000 shares at $15.53, bringing his total to 1,794,217 shares valued at $26M. The upcoming release of Mattel Films' 'Masters of the Universe' movie on June 5, 2026, is anticipated to create a merchandising boom similar to the success of the 'Barbie' movie in 2023. This positions Mattel favorably for growth and reinforces the belief in its value as an investment.

Mattel was a detractor for the quarter. Second quarter sales were below expectations as North American retailers adjusted ordering to domestic shipping vs. importing directly. This was to buy time to see if tariff rates abated, which resulted in a two-month lag in sales recognition. This resulted in North American sales down 16% while international segment sales increased 7%. Point-of-sale sell through at retailers was positive for Q2 and YTD showing healthy underlying demand as toys are somewhat non-discretionary. Mattel continues to execute operationally with improved gross margins even with lower-than-expected sales. While we believe 2025 will show overall modest sales growth, 2026 should accelerate given two new movies and at least one new digital game being launched in addition to a solid partner movie slate where Mattel produces related toys. In the interim, management is using almost all its FCF to repurchase shares at depressed prices. They plan to repurchase $340 million in 2H25 which equates to over 5% of shares outstanding.

We believe Mattel is in its strongest position in over 10 years, with multiple ways to win. Despite a challenging quarter where North American sales were down 16%, the company has shown healthy underlying demand with positive point-of-sale sell-through. Management is focused on operational execution, improving gross margins, and utilizing free cash flow to repurchase shares at depressed prices. Looking ahead, we anticipate modest sales growth in 2025, with acceleration in 2026 driven by new movie releases and digital games, alongside a solid partner movie slate.

Toy manufacturer Mattel, Inc. (MAT) also traded lower on mixed earnings, which were impacted by timing shifts in retailer order patterns due to tariff uncertainty while consumer demand remained healthy. Despite macro headwinds, gross margins expanded and EPS topped consensus, reflecting continued progress on profitability initiatives. Mattel’s ability to monetize its IP through future media projects supports our view that shares remain undervalued.

We have been encouraged to see Mattel on offense with tangible actions such as share repurchases and insider buying. This proactive approach indicates management's confidence in the company's future performance and value creation. As a significant holding in our portfolio, we believe Mattel is well-positioned to capitalize on market opportunities, enhancing its intrinsic value and providing a favorable price-to-value ratio.

Mattel reported solid results for the all-important 4Q, with 2% revenue growth and 6% growth in earnings before interest, taxes, depreciation and amortization (EBITDA). We were also pleased to see management repurchase a material amount of shares at great prices and commit to repurchasing at a high-single-digit percentage of shares outstanding in 2025 if the share price remains attractive. Mattel provided a relatively straightforward and growing outlook for 2025, even taking into account tariff risk at the time. Although conditions have deteriorated since then, CEO Ynon Kreiz’s foresight in diversifying the company’s supply chain years ago will pay dividends.