Is Barbie Officially Back? (And Other Thoughts From Mattel's Q4)

| About: Mattel, Inc. (MAT)
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Mattel (NASDAQ:MAT) delivered fiscal 4th quarter and full-year results after the market close on Monday and shareholders seem to like the numbers. The stock is up over 6% after-hours Monday as 4th quarter EPS of $0.67 beat expectations of $0.61 and revenue of an even $2 billion beat estimates of $1.91 billion. Growth was solid in most segments: Wheels +17%; Entertainment +7%; Fisher-Price +8%; American Girl +4%. More importantly, Barbie sales were actually up 1%, the first increase since the 3rd quarter of 2013.

Management has to be happy with these results. The only real black mark on the report card was the "Other Girls" category that saw a 36% drop in sales. Gross margin was down slightly in the quarter but the news here is mostly good. Here are my three main takeaways from Mattel's 4th quarter earnings report.

Barbie is back… sort of

I don't think a 1% gain in sales necessarily means a revival for the iconic brand, but it's very encouraging news for those that were worried that the Barbie doll might be fading into oblivion. Perhaps more encouraging is the fact that in terms of constant currency, sales were up around 8%.

The next step in Barbie's sales revival will most certainly come from the success of Mattel's new lineup of image conscious dolls. The new set of dolls complete with a variety of sizes, looks and features was an important, maybe even necessary, step in Mattel's evolution. Girl empowerment has been an increasingly prominent theme for many years now and it was time that the Barbie doll evolves to reflect this. Whether or not it will ultimately result in an increase in sales - sales start online on Thursday and hit stores on March 1 - is yet to be seen but it's promising to see that Mattel can indeed change with the times.

The dividend appears to be safe

One question that seems to surface more than any other when it comes to Mattel is whether or not the dividend is safe. With dividend payout ratios trending higher and free cash flow levels trending lower, it's become almost a cottage industry by many (including myself) questioning if the dividend is sustainable. Management has continued to state that the dividend is secure and now it looks like it has the financial results to help back up that notion.

If management felt the dividend was secure before it has to feel that the dividend is even more secure now. In the 4 quarters prior to this recent 4th quarter, Mattel was running a free cash flow payout ratio of around 93%. That's higher than it should be and will probably still be around the 90% area when this quarter is figured in. Either way, I don't think there's anything that happened that suggests the 6% dividend is less sustainable today than it was yesterday.

Currency headwinds continue

Continuing the theme that's played out all across the economy, the strong dollar continues to affect the bottom line. Looking at the graphic above, you can see that sales would be about 8-9% higher across every segment and overall using the constant currency methodology. The currency effect has an unfortunate impact on the actual numbers that Mattel is reporting, but taking a 30,000-foot view of things, it looks pretty clear that Mattel had a very solid holiday season and quarter.