By coinnews 
00:00 News Anchor
Shares of Mattel trading higher after reporting quarterly results that beat analyst expectations. The toy maker did pause its full-year guidance citing the volatile macroeconomic environment and evolving tariff landscape. Yahoo Finance Executive Editor Brian Sozzi spoke to Mattel CEO Ynon Kreiz earlier this morning who said the company is taking action to fully offset tariff costs.
00:24 Ynon Kreiz
When it comes to tariffs, uh, the mitigating actions that we’re taking are designed to fully offset the cost impact and this includes accelerating diversification of our supply chain and further reducing reliance on China sourced product, optimizing for optimizing product sourcing and product mix and we’re necessary taking pricing actions.
01:05 News Anchor
Mattel is trading in the red over the past year pressured by weakening demand from high interest rates, inflation, inventory levels and now tariff risks. But our next guest says even with tariff concerns shares are undervalued and attractive. Jamie Katz who is the Morning Star senior equity analyst joins me now. Okay, so take us into your thesis around how Mattel can best position itself despite some of the tariff risks that manufacturers and the retail industry are certainly keeping close tabs on.
01:44 Jamie Katz
Yeah, I thought last night’s report was really interesting because it was one of the first companies that we heard where where we heard the management say, we are going to fully mitigate these incremental costs and that was quantified to the tune of $270 million, right? So it’s not like a small degree. Part of that, I think is that a lot of investors don’t understand that only 20% or so of the inventory coming to the US is coming from China. And as the clip that you had showed prior to our discussion indicated, they are diversifying away from that. So by 2027 they’re only going to have less than 10% of the product coming to the US from China. They are willing to pull that forward if things stay, you know, the way that they are. But I think there is some flexibility in the supply chain that has been maybe overreacted to. The other piece, I think, is that there is a little bit of a mix shift going on in the product portfolio where they’re trying to really wean off products that aren’t generating the ROIs that they want. So as you have just a basket of more better performing assets, of course, that’s going to help defend your profit margin.
03:54 News Anchor
So which products would you like to see and lines of business? Would you like to see Mattel lean further into versus those that they should start to make some strategic decisions to either sunset or roll back, knowing that consumers haven’t been gravitating towards them the same way that they would have now that there’s even more digitization, there’s even more IP that they would like to leverage in order to create that next either game or toy that’s being played with across all generations perhaps?
04:41 Jamie Katz
Yeah, I mean I think I think Hot Wheels has been a terrific evergreen brand for them and they’re coming out with these block sets of, you know, classic iconic cars to to sort of expand that product line. I think that continues to resonate with consumers really well. You continue to see some issues within that infant and toddler portfolio and they are continuing to downsize that. And quite frankly, the infant toddler preschool category has been a problem for them over the last decade. So I think they’re trying to remedy it. It’s just a very difficult age group to tap into successfully for a number of companies, so they’re not alone there. And I think for more of the digital part, we’ve heard them discuss putting out self-published video games. They have a relationship with NetEase. So they are accelerating those avenues for growth. It’s just maybe taking a little bit longer than investors might like.
06:08 News Anchor
Jamie, I’m going to try and hustle to my finish and squeeze two questions in here. First, what does this all mean for pricing? The CEO told our own Brian Sozzi when it comes to pricing they work very closely with those retail partners, but it’s clear that it’s going to have to do some type of moderation on pricing. They assume or they expect to see between 40 to 50% of their product in the US will be priced at $20 or less. What are your anticipations there?
06:46 Jamie Katz
Well, I think they’ll probably take pricing in some of the higher priced objects where maybe you’re going towards collectors or people with more discretionary income. And then they’ll be very tactical in keeping those lower price objects under that $20 price point so it’s accessible for people that are maybe a little bit more stretched right now.
07:10 News Anchor
Certainly. And just lastly here, is now the time to consider adding Mattel to the portfolio if an investor doesn’t already have it, or is there another more attractive name in the toy space?
07:25 Jamie Katz
Uh look, I think Mattel and Hasbro are both undervalued. Mattel is trading at about $16 a share. Our fair value estimate’s 25. So we think there is a margin of safety. Clearly if you are very tariff averse, this is going to be a difficult name to get behind, maybe until we get more clarity in July, but the demand is there. It seems like the sales have been coming in. The POS numbers look okay. So we aren’t concerned about entry level price where we’re at today.