Mattel: Barbie Sales Tracking Better Than Expected

UBS said Mattel, Inc. (NASDAQ: MAT)'s Q2 results shows more conviction in top line recovery as Barbie retail tracking better than expectations and is able to offset Disney Princess loss.

For the second quarter, Barbie shipment grew 24 percent in constant currency and includes licensing revenue from Universal, but also driven by strong new younger girl line-up.

"We est. roughly 1/3rd of incremental revenue for Barbie in Q2 came from licensing revenue, implying $10M of sales, but we note excluding licensing revenue Barbie would still be up double digits in Q2," analyst Arpine Kocharyan wrote in a note.

Kocharyan, who has a Buy rating on Mattel shares, believes Barbie retail sales rose double digits in the second quarter in North America is above expectations. Internationally better Barbie POS traction this quarter, as the brand exited first quarter with low inventories.

"Barbie internationally typically plays catch-up, with North America leading recovery. Mattel notes better Fashionista line traction with core dolls, with younger girl segment growing much faster than expectations," the analyst said.

That said, Kocharyan noted that gross margin mix shift impact on FY'16 is driving MAT's gross margin guide to now 48.5 percent, down from "roughly in line" with last year's 49.2 percent.

"With H1 margins down 330bps, H2'16 margins need to be up in the 50-50.5% range to meet margin guidance of 48.5%. We feel this reflects a more reasonable set-up for meeting expectations in H2," Kocharyan highlighted.

The analyst has a price target of $36.