Mattel Posts Mixed Results in Q2

Key Points

• Adjusted EPS exceeded expectations, coming in at $0.19 versus the $0.16 estimate.

• Doll and preschool toy categories declined, but Vehicles (like Hot Wheels) and Action Figures grew.

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Mattel (NASDAQ:MAT), the global toy maker behind brands like Barbie, Hot Wheels, and Fisher-Price, reported its second quarter 2025 earnings on July 23, 2025. The company’s latest results reflected mixed performance: GAAP net sales fell short of analyst expectations. Revenue for the period dropped to $1.02 billion, below the $1.05 billion estimate and down 6% from the prior year. Adjusted EPS of $0.19 were unchanged year over year, topping projections of $0.16. The quarter was a period marked by margin improvement and selective product strength, but also notable category and regional declines.

Source: Mattel. Note: Analyst consensus estimates for the quarter provided by FactSet.

Understanding Mattel’s Business and Strategic Focus

Mattel produces and markets some of the world’s most recognizable toys, including dolls, toy vehicles, and early childhood products. Its core brands are Barbie (dolls), Hot Wheels (toy vehicles), and Fisher-Price (infant, toddler, and preschool toys). The company sells globally, with a deep presence in both North America and international markets.

Recently, Mattel has concentrated on expanding its brand-related intellectual property through entertainment, partnering with major film and television studios, and growing its digital offerings. Key success factors for the business include strong brand management, a flexible global supply chain, and the seasonal nature of toy sales—with a heavy reliance on the holiday period for annual results.

Quarter in Review: Data and Key Developments

The second quarter showed continued operational discipline, even as underlying revenue and net income trended downward. GAAP revenue declined by 6.0% from the same period in the prior year, coming in below analyst expectations. This decline was most pronounced in North America, where GAAP net sales tumbled 16% to $510.8 million. In contrast, International markets were a source of resilience, with GAAP net sales up 7% to $507.8 million. Within international regions, Europe, Middle East, and Africa sales rose 11%, and Asia-Pacific sales increased by 16%.

The drop in North American sales was attributed by management to "global trade dynamics and timing shifts in retailer ordering patterns" Direct import—where retailers control shipments—also contributed to quarter-to-quarter volatility. Cash flow highlighted ongoing pressure, as Free cash flow (non-GAAP) for the first half of 2025 (Q1–Q2) remained negative. Negative free cash flow (GAAP) for the first half of 2025 reached $351 million, steeper than the $283 million in the same period last year, primarily driven by lower net income and higher working capital charges from increased inventory.

Category performance was mixed, exposing some structural shifts within the toy portfolio. Doll sales, including Barbie dolls, saw gross billings fall 19% to $335.2 million. The Barbie brand specifically dropped 25 %. Infant, toddler, and preschool toys—anchored by Fisher-Price—dropped 25% versus the prior year's second quarter. Vehicles, driven by Hot Wheels car toys, provided a bright spot: gross billings for Hot Wheels grew 9% to $357.3 million, helping push the total Vehicles category up 10%. Gross billings for Action Figures, Building Sets, Games, and Other rose 16%, primarily driven by growth in Action Figures.

Profitability improved despite the revenue headwinds. Adjusted Gross Margin—essentially the share of sales leftover after production and product costs, after excluding certain one-time expenses—increased two percentage points to 51.2 %. Management credited this to ongoing cost savings initiatives, especially its Optimizing for Profitable Growth program, lower inventory-related costs, and improved product mix, but noted that cost inflation offset some gains. Adjusted operating income fell to $88.1 million, reflecting the sales pressure, while net income (GAAP) slipped 6% to $53.4 million. Share repurchases also continued, with $50 million bought back during the quarter and $210 million year-to-date.

The company saw minimal impact from new U.S.-China tariffs so far, but warns these will affect costs from Q3 2025 onward. Management reiterated that it continues to proactively shift production out of China, and now sources less than 40% of global toy supply from China—well below the industry average—as of May 2025. It expects this to drop even further. Leadership also said that, as tariffs begin to take effect in 2025, 40–50% of U.S. product volumes will remain priced at $20 or less, aiming to minimize the risk to sales from higher prices.

Looking Ahead: Outlook and Key Issues for Investors

Mattel adjusted its guidance for FY2025, now expecting constant-currency net sales to grow by 1%–3%. This replaces its earlier forecast of 2%–3% net sales growth for FY2025. The company’s new target for adjusted earnings per share is a range of $1.54 to $1.66 for FY2025, cut from adjusted EPS guidance of $1.66–$1.72 for FY2025. Free cash flow (non-GAAP) guidance for FY2025 was reduced to approximately $500 million, down from approximately $600 million. Management said that while it expects to fully offset the direct cost of tariffs through supply chain changes and selective price increases, there is continued uncertainty in global demand and retailer order patterns. The $600 million share repurchase goal for the year remains intact.

Investors should watch for further impacts from tariffs, especially as the company implements more sourcing changes and price adjustments to counter new costs. Pressures on legacy brands such as Barbie and Fisher-Price make it clear that new entertainment tie-ins and digital projects will be critical in sustaining momentum. The remainder of 2025 will likely hinge on the holiday season and the company’s ability to balance price increases with consumer demand, particularly in the U.S. market.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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