Mattel

Mattel announced CEO Ynon Kreiz is departing the firm on Oct. 2. Roger Lynch, most recently CEO of Conde Nast and lead independent director of Mattel, is slated to take the helm on or before Nov. 2, 2026. Jonathan Anschell, the chief legal officer and secretary, will be interim CEO.

Why it matters: While Kreiz is set to leave to pursue another opportunity, we think the leadership change is overdue. Shares have done a round trip under Kreiz's tenure, roughly doubling to the mid-$20 range before falling back to around $13, where shares currently trade. Kreiz's strategy to establish Mattel as an IP-driven, high-performing toy company has largely fallen flat. From a financial perspective, we forecast sales to grow just 2% in aggregate in the five years ending 2026 while operating margins are expected to contract 360 basis points (to 10.3%). As a board member at Mattel since 2018, Lynch has implicitly supported Kreiz's strategies. Our hope is that his media and technology background (Pandora, Sling TV) allows for an accelerated execution of the digital, publishing, and other engagement efforts, bolstering profitability.

The bottom line: We hold our $23 per-share fair value estimate for narrow-moat Mattel and view shares as undervalued. We think there has been concern around share ownership given Mattel's underexposure to faster-growing toy categories like building sets and games. Our intrinsic value is based on average sales growth of 2.5% and an operating margin that expands to nearly 13% by 2035, assuming the current growth strategy remains intact. We think restoring midteens operating margin levels will be difficult given some cost inflation is likely to be permanent. We don't expect to alter our Standard Morningstar Capital Allocation Rating. Given the firm's performance in recent years, we hold a neutral view on its investment strategy but view its balance sheet as sound and think its cash distribution strategy is appropriate, with dividends currently on hold.

We are holding our $23 fair value estimate per share for Mattel. The firm's sales rose by 10% in the second quarter, aided by gross billings of vehicles (up 14%) and challenger categories (up 35%). Still, costs (tariffs, foreign exchange, inflation, and investments) added pressure to profitability, leading to an adjusted operating margin contraction of 600 basis points (3.4%). Additionally, the operating profit outlook for 2026 of $580 million to $630 million implies a second consecutive year of operating margin contraction. On the top line, Mattel’s 2026 guidance for an increase of 3%-6% in constant currency (with foreign exchange anticipated to have a 1% benefit) was unchanged, and our forecast is for 4% growth, to $5.6 billion, above the around $5.4 billion in sales the firm delivered over the last five consecutive years. While macroeconomic and political uncertainty will provide continued volatility, we don’t think consumer spending hesitancy will persist indefinitely. As consumers return to spending when sentiment stabilizes, we see no reason Mattel’s portfolio of brands shouldn’t be in demand.

The traditional toy industry remains mature and stable, and global demand is expected to grow at 3.6% on average through 2030, according to Euromonitor. Mattel should be able to largely maintain its global market share, as product improvements and growth in emerging markets should bolster moderate domestic growth. The firm should also gain licensing traction from its entertainment tie-ups, including Disney Princess (resumed in 2023), Despicable Me, KPop Demon Hunters, Teenage Mutant Ninja Turtles, Pokémon, and Lightyear licenses. We project around 2.3% sales growth over our forecast, weighed down by weak performance in the infant, toddler and preschool business. We forecast that selling and administrative expenses will benefit from continued cost savings (ending around 27.6%), although this will be offset by ongoing investment in product innovation to bolster its competitive edge, secure its leadership position, and its narrow economic moat. Furthermore, we see the advertising spending ratio remaining around 10% as the company invests in connecting with consumers.

We believe Mattel's operating margins and returns on invested capital should generally rise as the Optimizing for Profitable Growth initiative continues to bear fruit. We forecast operating margins that average 12.2%, constrained by investments in innovation, inflation, and tariffs, which a more favorable consumer sentiment could mitigate. Mattel has historically generated ROICs above our weighted average cost of capital assumption (8%), and we believe it could continue to produce compelling ROICs as it redevelops brand enthusiasm. With Mattel having shuttered some of its manufacturing, ROICs, including goodwill, should average 15% over the next decade.

We assign a narrow economic moat to Mattel stemming from an intangible asset edge arising from its long-lived brands that have consistently resounded with customers, the ability to market its products effectively, and an engrained distribution network. This has surfaced in robust market share, historically stable pricing power, the skill to win licensing partnerships, and symbiotic wholesaler/retailer relationships.

We think Mattel’s aptitude to amass a significant presence indicates its brands have been able to evolve with consumer trends, particularly on its home turf, where it has remained a leading operator for decades. For example, in the $3.1 billion toddler infant preschool market (just 15% of its North American sales mix), Mattel is the number-one player with a 26% share of the baby/infant market, more than double the level of its nearest competitor, and the number-one player in the preschool market with 30% market share bolstered by well-known brands like Fisher-Price and Thomas (Euromonitor). Additionally, Mattel has amassed a solid standing in the $5.1 billion doll and $1.3 billion vehicle market domestically, where it represents 27% and 72%, respectively, of the aisle, which together represent 47% of the firm’s gross sales base. While the global stage is more fragmented, Mattel still leads in market share across baby and infant (14%), dolls (24%), and vehicles (43%), categories that represent more than 80% of Mattel’s international sales composition. In our opinion, a strong market share implies brand relevance. In turn, we think Mattel’s in-demand products have allowed the firm to take pricing strategically.

Furthermore, since current CEO Ynon Kreiz filled the seat in 2018, a sea change incorporating stability infiltrated the firm’s culture, with efforts on simplifying the business, monetizing the intellectual property, and focusing on the brands with the highest return on investment. The success of an updated strategic plan surfaced in Mattel's gross margin, which climbed from 40% in 2018 to 48.9% in 2025, despite facing inflationary pressures (plastic and resin costs increased 18% during 2019-25). Still, we see an opportunity for Mattel to further beef up gross margins from current levels. To start, the Optimizing for Profitable Growth initiative (2024-26) is slated to focus 55% of its $225 million total savings on benefiting the gross margin line. Additionally, Mattel has been able to tactically take price increases over the course of the last few years. As management expects pricing to exceed inflation due to innovative product introductions, and as digital becomes a larger part of the sales mix, we see gross margins stabilizing above 50% over the longer term, after reaching nearly 50% in 2026.

We believe Mattel’s ability to achieve an attractive market share and optimal pricing is due to consistent spending on product development, marketing, and advertising. Mattel’s product development costs are embedded within the selling, general, and administrative ratio, which has remained in a fairly consistent range over the last decade (mid- to high-20%). In our opinion, investing in product innovation is just as important for driving brand sales as advertising and promotional efforts. Mattel has also recognized this, allocating 10% of sales to these expenses on average over the last five years.

Moreover, not only does Mattel have several topnotch owned brands, but its position as one of the largest toy companies allows it to capture licensing partnerships with relative ease, as it is a top choice for any partner to pair with, with wide reach and deep marketing pockets. In recent years, Mattel has captured coveted contracts to produce toys for Disney Princess and Frozen, Pixar, Warner Bros., and Microsoft (Minecraft, Halo), brands that have shown long-term resonance with consumers. As such, industry leaders’ success in licensing partnerships has deterred new competitors from entering the market. The firm’s proven sales record maintains its dominance in securing new licensing deals, a trend unlikely to revert soon.

Additionally, we think Mattel’s established position with retailers has led to an interdependent relationship that would be hard to replicate by a new competitor, bolstering its brand edge. Mattel is an important vendor to companies like wide-moats Walmart and Amazon, as well as no-moat Target. In 2025, these three sellers represented 42% of worldwide consolidated net sales for Mattel, implying the importance of Mattel as a key supplier for filling the toy aisle. We don’t forecast these distribution partnerships to be disturbed, given that most peers in the industry are significantly smaller than Mattel’s $5.3 billion in net sales (2025) and unable to provide enough inventory to optimize shelf space (for example, a company like Spin Master that owns brands like Melissa & Doug sold $2.1 billion in toys in 2025).

Although Mattel holds a brand intangible asset edge, we don’t believe there is enough evidence to signal that it has developed a cost advantage, although expense metrics should improve modestly over time. For one, the cost savings from the firm’s prior pivot to more third-party production mirror how the peer set (Hasbro and Spin Master) already operated. Additionally, efforts to drive volume demand through a greater focus on better return on investment efforts (digital, direct to consumer, for example) while de-emphasizing underperforming stock-keeping units is a best practice for success, in our opinion, rather than an effort that Mattel has cornered. Furthermore, we consider the firm’s perpetual cost-saving initiatives—most recently, the $225 million Optimizing for Profitable Growth program—a function of a business that needed to improve efficiencies and invest in innovation rather than an effort that will set the cost profile of Mattel apart from its peers.

Mattel's size allows it to fund new products, expand into high-growth emerging markets, and make acquisitions, while its portfolio of brands lends itself to scalable expansion in new categories like digital and new franchises.

As one of the largest players in the toy industry, Mattel is a preferred licensing partner for important tie-ins with entertainment companies.

Mattel's prior cost-saving and capital-light initiatives yielded $1 billion in run-rate savings. Efforts beyond the $225 million expected from the Optimizing for Profitable Growth initiative could reduce expenses further.

The target market for traditional toys could continue to shrink as a percentage of total toy sales, hurt by digital content that becomes more pervasive in product selection.

Supply chain congestion, geopolitical disruptions, and inflationary headwinds could prevent Mattel from reaching midteen operating margins until beyond our forecast.

Mattel's inability to tailor its brands to digital content channels that increasingly resonate with consumers could lead to lower brand relevance and slower sales growth than we currently anticipate.