Aug 4 (Reuters) - Mattel on Tuesday topped analysts' estimates for second-quarter revenue and reaffirmed its annual forecasts, but profit fell short as tariff-related costs squeezed the toymaker's margins.
The company posted an adjusted profit of 1 cent per share, missing expectations of 4 cents per share, according to data compiled by LSEG.
However, quarterly net sales of $1.12 billion beat analysts' estimate of $1.10 billion.
The results underscore Mattel's efforts to diversify beyond its traditional
toy business through entertainment and digital gaming initiatives, as well as greater investment in brand promotion.
While those investments helped drive sales growth during the quarter, they also weighed on profitability.
Adjusted gross margin fell 260 basis points to 48.6%, hurt by tariffs, inflation, higher royalty expenses and unfavorable forex movements. Advertising and promotion expenses jumped 57% from a year earlier, while adjusted operating income fell 60%.
"We continued to execute our multi-year strategy to grow our IP-driven play and family entertainment business in the second quarter with strong growth in net sales," CEO Ynon Kreiz said.
"Our own IP and partner brands, and also digital games, is becoming an important part of our growth algorithm," a Mattel executive said during the earnings call.
The toymaker maintained its expectations for annual adjusted profit of between $1.27 and $1.39 per share and net sales growth of 3% to 6%.
The company said it did not include benefits from any potential U.S. import tariff refunds in its forecast.
"Revenue outlook appears increasingly achievable following a solid first half and positive consumer demand trends," Jefferies analysts said in a note.
They added that investors would focus on whether the ongoing tariff pressures and increased brand investment limit the company's ability to convert stronger sales into earnings growth.
Shares of the company were up about 1% in after-market trading. They have fallen 25% so far this year.
Last month, rival Hasbro raised its annual revenue and profit forecasts on resilient demand for its digital gaming business and continued strength in "Magic: The Gathering".
(Reporting by Koyena Das in Bengaluru; Editing by Sriraj Kalluvila and Diti Pujara)
