Mattel profits soar as Hot Wheels avoid inflation drag

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July 21 (Reuters) – Parents have continued to buy Mattel Inc’s (MAT.O) Hot Wheels action figures and cars for their children, even as the toys have become more expensive, helping the company to beat quarterly earnings estimates on Thursday.

Rival Hasbro Inc (HAS.O) also posted a robust second quarter as demand for toys has so far weathered decades-long high inflation that has forced Americans to save their dollars for essentials like toys. food and gasoline. Read more

But soaring raw material, freight and labor costs are starting to catch up with Mattel, pulling its adjusted margins to 45% from 47.5% last year.

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In response, Mattel plans to continue raising prices and CEO Ynon Kreiz said he was confident toy sales would hold up even in the face of a potential economic downturn, echoing comments from his counterpart at Hasbro.

Mattel’s net sales jumped 20% to $1.24 billion in the second quarter, beating analysts’ estimates of $1.10 billion, according to Refinitiv IBES data.

Overall gross billings for Hot Wheels toys rose 26% in the quarter, while the unit that makes action figures jumped 44%, driven by demand for toys based on characters from the movies “Lightyear” and “Jurassic World”.

However, Chief Financial Officer Anthony DiSilvestro, on an earnings call, said the company was seeing some weakness in more expensive items such as the Barbie Dreamhouse.

Shares of the California-based toymaker slid about 1% in extended trade, bruising this week’s 12% gain.

“We think top margins are behind MAT and we’re a bit worried about inventory levels up 44% year-over-year,” CFRA Research equity analyst Zachary Warring said, but added that the company is in a much better situation than before the pandemic.

Kreiz told Reuters that Mattel’s 44% increase in inventory was necessary to meet an expected increase in demand in the second half.

Excluding items, the company earned 18 cents per share, beating estimates of 6 cents.

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Reporting by Uday Sampath Kumar and Ananya Mariam Rajesh in Bengaluru; Editing by Devika Syamnath

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