Mattel's quarterly loss smaller than expected as cost cuts pay off

By Granth Vanaik

(Reuters) -Mattel posted a smaller-than-expected loss for the first quarter on Tuesday, helped by the Barbie maker's tight leash on costs while demand remains tepid for its toys.

The toymaker has planned to exit less profitable brands, consolidated its American Girl operating segment and streamlined its supply chain as part of efforts to achieve $200 million in savings by 2026.

The company's shares swung between gains and losses in choppy after-hours trading. They were last up 1.6%.

"We are off to a good start for the year with significant margin expansion and very strong improvement in free cash flow," CEO Ynon Kreiz said in an interview with Reuters.

Mattel's gross margin grew 8 percentage points to 48% in the first quarter, also in part due to easing input costs as well as lower inventory management expenses.

Retail inventory levels were down in high-single digit percentage at end of the quarter after the company entered the year with elevated stocks. Retail inventories are now at appropriate levels, the company said.

"Significant gross margin expansion is clear evidence its cost-savings initiatives are paying off," said Emarketer analyst Zak Stambor, adding it was important for Mattel to keep costs in check given the weak demand.

The company, which reaffirmed its full-year sales and profit forecasts, said in February it expected the toy industry to decline in 2024 but at a slower rate than 2023.

Kreiz said while sales edged lower, consumer demand trends were improving during the quarter.

Mattel's results bode well for the overall confidence of the industry, said James Zahn, editor-in-chief of "The Toy Book".

Rival Hasbro, which is set to report its first-quarter results on Wednesday, has also trimmed its workforce to cut costs.

Mattel's first-quarter sales of $809.5 million missed estimates of $831.8 million, as per LSEG data, while adjusted loss of 5 cents per share compared with estimates of 12 cents.

Net sales in its North American segment rose 2% on a constant currency basis, compared to a 27% drop a year earlier.

(Reporting by Granth Vanaik in Bengaluru; Editing by Sriraj Kalluvila)