Mattel soars as cost cuts and Barbie sales deliver an earnings surprise

Mattel Inc. continued to shake off the liquidation of major customer Toys R Us Inc. and used aggressive cost-cutting to blow past Wall Street estimates during the fourth quarter, which included the crucial holiday shopping season.

The El Segundo toy company posted adjusted earnings of 4 cents a share — a surprise for analysts who had expected a loss of 14 cents a share.

Mattel reported the results Thursday afternoon, and its stock soared as much as 19% in after-hours trading.

When Chief Executive Ynon Kreiz took the reins of the company in April, he set out a two-pronged strategy to turn around the ailing toymaker: First, cut costs and boost profitability, and then revive sales growth by creating more entertainment around properties such as Barbie and Hot Wheels.

Step 1 is paying off, and Step 2 is in the works. Key to the profit beat was a big expansion in gross profit margin to 46.6%, a marked improvement from 30.7% a year earlier.

The company accelerated a cost-cutting program aimed at administrative expenses, which it slashed by double digits this quarter.

Barbie became a billion-dollar brand last year for the first time since 2014, with $1.09 billion in annual revenue.

The impact of Toys R Us’ demise isn’t totally gone: Mattel’s revenue fell for the sixth quarter in a row. It reported net sales of $1.5 billion for the holiday quarter, down 5% from the year-earlier quarter.

But the drag should dissipate in the second half of 2019, Kreiz said in an interview Thursday. “We aren’t claiming victory,” he said. “We have a long way to go, but we are tracking well.”

Investors interested in the state of the toy industry will get more information Friday when rival toymaker Hasbro Inc. reports its fourth-quarter earnings.

In regular trading Thursday, before the earnings report, Mattel’s stock fell 1% to $12.36 a share. It had fallen more than 27% in the past year, even as the benchmark Standard & Poor’s 500 index had a 0.9% gain.