Why Mattel Stock Rally This Week

Shares Mattel (MAT 1.35%)The toy maker known for brands like Barbie and Hot Wheels saw a boost this week after the company received a buyout offer. According to Reuters, Mattel was approached by a private equity firm.

The company’s shares rose on Monday on the news, then fell on Tuesday as enthusiasm waned, then rose again on Wednesday after it reported better-than-expected second-quarter earnings Tuesday evening.

The company’s shares rose 17.9% in a week, according to data from S&P Global Market Intelligence.

Image source: Getty Images.

Could Mattel go private?

The news that L Catterton, a private equity firm LVMHmay be interested in buying Mattel, which was certainly a surprise since Mattel had been struggling for years, although Barbie doll The film gave the company a much-needed boost. Reuters said L Catterton had approached Mattel with a takeover offer, although Yahoo denied the report and Mattel would not comment on any talks, saying it was confident in its standalone strategy. Reuters also speculated that L Catterton’s interest could lead to a bidding war with Hasbro perhaps I’ll join.

Later that week, Mattel reported second-quarter results that were slightly below estimates for revenue but topped them for net income.

Revenue for the quarter fell 1% to $1.08 billion, below estimates of $1.1 billion, as weakness in the toy market continued, although the company outperformed rival Hasbro. It also continued to deliver solid margin improvement, with gross margin rising from 45.1% to 49.2%. Adjusted operating income rose from $75 million to $96 million.

Adjusted earnings per share nearly doubled from $0.10 to $0.19, partly due to higher interest income and a lower tax rate. CEO Ynon Kreiz said: “We are in a strong financial position to execute on our strategy to grow our IP-based toy business and expand our entertainment offerings.”

What’s next for Mattel?

Mattel maintained its full-year outlook, expecting flat revenue growth of $5.44 billion and adjusted earnings per share of $1.35 to $1.45, compared with $1.23 in the prior year.

L Catterton’s interest is intriguing, but management seemed to shrug it off. While Kreiz and his team have had success in strengthening the business and restoring the brand, Mattel still needs to return to revenue growth if the stock is to achieve a real breakthrough.