Toy manufacturing and entertainment company (NASDAQ:MAT) fell short of analysts' expectations in Q4 FY2023, with revenue up 15.6% year on year to $1.62 billion. It made a GAAP profit of $0.42 per share, improving from its profit of $0.05 per share in the same quarter last year.

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Ynon Kreiz, Chairman and CEO of Mattel, said: “2023 was a milestone year for Mattel. We extended our leadership in our key toy categories and gained significant share overall, achieved extraordinary success with the Barbie movie, and further strengthened our financial position.”

Known for the creation of iconic toys such as Barbie and Hotwheels, Mattel (NASDAQ:MAT) is a global children's entertainment company specializing in the design and production of consumer products.

Leisure Facilities and Products

Fitness companies may be riding the wellness trend, for example, while those selling boats and toys may have to lean into innovation to stand out. Either way, all leisure companies must compete against the 800-pound gorilla of social media and streaming entertainment, which offer instant gratification and have been taking share of consumers’ free time for over a decade.

Sales Growth

Exploring a company's long-term performance can offer valuable insights into its business quality. Any business can experience brief periods of success, but distinguished ones maintain steady growth over time. Mattel's annualized revenue growth rate of 3.6% over the last 5 years was weak for a consumer discretionary business. Within consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. Mattel's recent history shines a dimmer light on the company, as its revenue was flat over the last 2 years.

This quarter, Mattel's revenue grew 15.6% year on year to $1.62 billion, falling short of Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 2.7% over the next 12 months, a deceleration from this quarter.

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Operating Margin

Operating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Mattel was profitable over the last two years but held back by its large expense base. It's demonstrated mediocre profitability for a consumer discretionary business, producing an average operating margin of 9.7%.

In Q4, Mattel generated an operating profit margin of 8.6%, up 2.6 percentage points year on year. This increase indicates the company was more efficient with its expenses over the last quarter, spending less money in areas like corporate overhead and advertising.

Over the next 12 months, Wall Street expects Mattel to become more profitable. Analysts are expecting the company’s LTM operating margin of 11.3% to rise to 12.7%.

Key Takeaways from Mattel's Q4 Results

We were impressed by how significantly Mattel blew past analysts' EPS expectations this quarter. Its free cash flow for the full year also beat expectations, enabling it to repurchase $203 million of shares in 2023. The Board also authorized another $1 billion of share repurchases.

On the other hand, its revenue missed Wall Street's estimates this quarter as its international sales were underwhelming (3% year-on-year growth). The North America segment, however, grew its revenue by 32% year-on-year thanks to strong demand for its Barbie dolls, Disney-branded dolls (specifically Disney Princesses and Frozen characters), and Hot Wheels products.

Overall, this was a mixed quarter for Mattel. The stock is up 1.2% after reporting and currently trades at $19.05 per share.

So should you invest in Mattel right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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