Yahoo Finance Mattel CEO on activist investor agitation: We welcome a challenge
Fresh off a mixed fourth quarter but a big 2023, no-nonsense Mattel (MAT) chairman and CEO Ynon Kreiz is keeping an open mind about an activist investor who is challenging his stewardship of the iconic toymaker.
"We always welcome feedback from our shareholders and are happy to have a conversation with our investors," Kreiz, Mattel's CEO for about six years, said on Yahoo Finance Live Thursday. "We are focused on executing our strategy, and our goals are very much aligned with all our shareholders to create long-term value."
The comments followed Mattel's fourth quarter results, in which the toymaker reported a 16% sales increase on the back of the blockbuster Barbie movie. However, profits did fall short of analyst estimates.
Here's how Mattel performed in the all-important holiday quarter.
The earnings rundown
Net sales: +16% year over year to $1.62 billion vs. estimate of $1.64 billion
Adjusted gross margin: 48.8% (43.1% last year) vs. estimate of 49%
Adjusted EPS: +61% year over year to $0.29 vs. estimate of $0.31
What else caught our attention
Stat to know: Worldwide gross billings in 2023 for the infant, toddler, and preschool segment (Fisher-Price) were $1 billion, down 10% year over year
Full-year sales guidance: About $5.44 billion vs. estimate of $5.54 billion
Full-year adjusted EPS guidance: $1.35 to $1.45 vs. estimate of $1.37
Enter a very interested onlooker.
After the publicly celebrated release of "Barbie" last year — which has since grossed more than $1.4 billion worldwide in theaters — Mattel was surprised by a well-documented agitator, Barington Capital founder and chairman James Mitarotonda, earlier this month.
Mitarotonda — who reportedly has built up an undisclosed stake in Mattel — unleashed a list of demands in a pointed letter to Kreiz.
The demands include the sale of the Fisher-Price and American Girl toy brands, which Barington believes are underperforming relative to their potential.
Barington estimated that Fisher-Price's sales have dropped by 40% from 2015 to the 12 months ended Sept. 30, 2023. American Girl sales are believed to have fallen by 61% during that span, according to Barington's math.
"In our view, this long-run market share cession suggests that Mattel may not be the right owner of these brands. Indeed, we believe that these brands are now detracting from the success at Mattel’s other segments, and hurting shareholder value," Mitarotonda wrote in the letter.
"SpinMaster’s recent acquisition of Fisher-Price competitor, Melissa & Doug, for $950 million or 2x revenue and 10.5x EBITDA [earnings before interest, taxes, depreciation, and amortization], suggests now is the time to consider the sale of Fisher-Price and American Girl," Mitarotonda added. "In our view, there could be strong demand for these highly recognized brands, and a sale would not only free up capital for other activities, but would change the growth profile of the company and yield a higher multiple of earnings for the stock."
Other areas of contention for Barington include "excessive" stock-based compensation awarded to top execs such as Kreiz. Barington said Kreiz should cede the chairman role to a lead director and also enact a new $2 billion share buyback plan.
If Mattel were to undertake these actions, Barington estimates Mattel's stock could "more than double" in three years' time.
Prior to its Mattel agitation, Barington earned its reputation among investors in 2019 by driving the board shake-up and eventual breakup of L Brands, the onetime owner of Victoria's Secret (VSCO) and Bath & Body Works (BBWI). Both are now standalone public companies after their breakup in July 2021.
And in 2013, Barington pushed for a breakup of restaurant behemoth Darden (DRI). By May 2014, Darden unloaded its Red Lobster chain to private equity outfit Golden Gate Capital for $2.1 billion.
Mitarotonda didn't reply to several requests by Yahoo Finance to comment on this story.
Kreiz has extended a small olive branch to Barington.
On Wednesday evening, Mattel revealed a new $1 billion stock buyback plan and $200 million in fresh cost cuts.
Kreiz says the smaller buyback — in relation to Barington's demands — is the right one financially for Mattel.
"The $1 billion share repurchase program that we announced is the right amount in our mind that is in sync with our capital allocation priorities and with our balance sheet and reflects our confidence in the continued execution of our strategy in that we'll be able to continue to position the company for long-term value creation," Kreiz said.
Mattel didn't bite on putting Fisher-Price and American Girl up for sale, however.
In fact, the company said it would no longer report American Girl as a standalone segment and integrate it more tightly into its North American operations. Kreiz told Yahoo Finance that Mattel will continue to invest in Fisher-Price at a good clip and just shook up the brand's leadership team.
These are clear signs from Kreiz that he doesn't agree with unloading two iconic brands to appease an activist.
"As a management team, we always evaluate our portfolio," Kreiz said. "We would like to have all of our brands grow and be in a strong position. We do have work to do on Fisher-Price, and we are doing it." Kreiz added that Fisher-Price is a "valued asset."
Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter/X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
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