The Barbie movie may have smashed North American box office records but there is less love for shares in its image rights owner Mattel (MAT:NYSE). While the film grossed an estimated $162 million on its debut weekend, Mattel shares dropped 2% in extended trading in Wednesday (26 Jul) even though second quarter earnings beat expectations. 

Why? It probably reflects a little short-term profit taking after the shares strong run - they have jumped 16% in July - ahead of Barbie’s release.

The film, staring Margot Robbie and Ryan Gosling, came out on the same weekend as director Christopher Nolan’s Oppenheimer, sparking a movie-going craze dubbed Barbenheimer, with the two movies booked back-to-back. This has created a much-needed bonanza for the embattled cinema chains, with the two movies grossing a combined $244.5 million, making it the fourth biggest box office weekend in history, according to reports.

How much this will bolster Mattel's coffers hasn’t been disclosed but Stifel analysts estimate the company could generate $75 million from toy sales, $12.5 million from licensing and another $11 million from film revenues.

Stifel estimates the movie could gross between $450 million and $550 million and potentially lift Mattel’s profit by $0.10 per share this year.

Mattel’s CEO Ynon Kreiz said Barbie is a ‘showcase for the cultural resonance of our IP (intellectual property). This speaks to the potential of Mattel Films and the significant progress of our strategy to capture the full value of our IP’ added Kreiz.

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Alongside the movie, the company has signed over 160 consumer product partnerships and released a Barbie movie soundtrack in partnership with Warner Brothers (WBD:NASDAQ) and Warner Music (WMG:NASDAQ) produced by Marc Ronson.

EARNINGS FALL

Second quarter sales to 30 June fell 12% to $1.09 billion and net profit fell nearly 60% to $27 million year on year, ahead of Wall Street estimates.  

Barbie sales fell 6% to $282.7 million marking the fourth consecutive quarterly fall while brands Fisher-Price and American Girl also declined. Hot Wheels sales increased 10% to $315.2 million.

Toy makers have been struggling with too much inventory since the end of the pandemic. Chief financial officer Anthony DiSilvestro said the inventory correction is ‘mostly behind us’ and we look forward to meeting consumer demand for our product, as we enter the second half of the year and all-important holiday season.’

The company reiterated full year guidance which calls for adjusted EPS falling 12% to a range of $1.1 to $1.2 and a big jump in free cash flow to around $400 million from $256 million.

WHAT ARE THE EXPERTS SAYING?

Investment director at AJ Bell Russ Mould commented: ‘The slight dip in the share price is probably down to investors disappointed at not seeing a surge in merchandise income related to the film, as they will have to wait a bit longer to see if that has happened.’

Drew Crum at Stifel said: ‘Mattel reported 2Q results that came in ahead of expectations, albeit for a period that's seasonally less important for the category. 

‘Growth is expected to return beginning in 3Q. This outlook is partly underpinned by the success Barbie is currently enjoying in theaters, which makes Mattel less susceptible to a weaker toy market outlook, in our opinion.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor of the article (Steven Frazer) own shares in AJ Bell.

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