This Well-Known Toy Company Is Set to Be an Outperformer if the Tariff War Continues

Mattel's (NASDAQ: MAT) stock was something of a hot item after the toy company reported its first-quarter results in early May -- and not only because it scored a double beat on analyst estimates. At a time when investors are worried about the impact of the current tariff war on American commerce, the company's management said the right things about its ability to weather the storm.

Here's a look at what management intends to do about the situation, and why both investors and analysts were pleased with the company's strategy -- not to mention those quarterly figures.

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Higher sales and a narrower net loss

Mattel's fundamentals headed in the right direction, with net sales ringing up at a bit under $827 million for year-over-year growth of 2%. Non-GAAP (adjusted) net loss per share narrowed, meanwhile, to $0.03 from the year-ago shortfall of $0.05.

Better, the two line items came in far ahead of the consensus analyst estimates of $786 million on the top line and $0.09 per share for adjusted net loss.

Image source: Getty Images.

Tariffs are front and center of many investor worries these days. To its credit, Mattel addressed the situation clearly and directly. The good news right off the bat is that not only did the levies fail to affect Q1 performance, they probably won't do so in Q2 either.

This is down to what management described as "the timing of inventory flows," a flowery way of saying the company has essentially secured most of the goods it needs for this quarter's manufacturing.

Beyond that (should the tariff tussle last that long), Mattel has come up with a set of actions to dampen the effect of higher costs of affected goods. It said it is speeding up the diversification of its supply chain generally, reducing its dependence on China, and "optimizing product sourcing and product mix." Last but surely not least, it'll adjust prices strategically for U.S. consumers if need be.

Mattel has a degree of flexibility here; in the conference call discussing the quarter, CEO Ynon Kreiz said that the company sources products from business partners located in seven countries.

Another nugget the Mattel leader dropped was that China is responsible for less than 40% of worldwide production of the company's toys. While that's still a chunky number, it's well below what Kreiz said is the current 80% average of the toy industry.

On top of that, before the tariffs were announced, Mattel had already been gradually relocating the production of certain lines from China to other locales.

Taking full advantage of tie-ins

As for its proximate future, Mattel's holding off on providing full-year 2025 guidance until such time as it "has sufficient visibility, given the volatile macro-economic environment and evolving U.S. tariff situation," as stated in the earnings release.

Nevertheless, the company's got some potential stock price boosters coming up. A line of action figures based on characters from the hit cinema video game adaptation A Minecraft Movie has done well on the market, Kreiz said in the conference call. The film's director, Jared Hess, recently said that discussions were already taking place about a sequel, nicely positioning Mattel for another round.

Meanwhile, the company has inked multiyear, worldwide licensing deals with several prominent intellectual property holders. For instance, it has one in place with longtime partner Walt Disney for the Toy Story franchise from the entertainment giant's Pixar unit. Like A Minecraft Movie, the planned 2026 release of Toy Story 5 should spur plenty of demand for representations of Woody and the gang.

So basically, Mattel not only notched convincing beats on key Q1 fundamentals, it has a clear-eyed vision on how to manage the current global economic turmoil. And with some lucrative licensing deals locked down for the next few years, it looks like growth is in the cards for the company. Investors should certainly consider loading up on some Mattel, particularly now.

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Eric Volkman has positions in Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool has a disclosure policy.