American Girl's Anniversary Highlights Mattel's Portfolio Shift Amid Persistent Challenges

What happened

American Girl celebrates its 40th anniversary with five quarters of sales growth, yet revenue remains far below its peak as Mattel navigates industry pressures. This aligns with the DeepValue report's emphasis on scaling non-doll franchises like American Girl to offset Barbie and infant/toddler softness. However, Mattel faces significant headwinds, including a 12% decline in North America sales in Q3 2025 and gross margin compression to 50.2% due to tariffs and rising promotions. Despite American Girl's steady performance, it cannot single-handedly counter broader issues like tariff drag and volatile retailer ordering patterns. The current valuation at $20.89 already discounts mid-cycle earnings, leaving limited upside without clearer evidence of sustained margin recovery and North America stabilization.

Implication

American Girl's consistent growth supports Mattel's portfolio diversification thesis but underscores its inability to fully offset larger headwinds like tariff costs and North America sales declines. Current pricing assumes gross margins around 50%, which are vulnerable to further promotional intensity and potential tariff hikes, risking downside to $17 if margins reset below 49%. The OPG cost-savings program offers some protection, but execution must prove resilient amid retailer inventory shifts and economic uncertainties. Investors should await Q4 2025 results to assess whether North America revenue rebounds and gross margin holds, as these are critical for validating the base case. Prudent positioning involves patience for a pullback to $18 or stronger signals of portfolio rotation and cost discipline before increasing exposure.

Thesis delta

The news on American Girl confirms the existing thesis that non-doll franchises are growing as planned, but it does not alter the fundamental risks from tariffs, margin pressure, and North America weakness. No shift in the investment call is warranted; the 'WAIT' rating remains appropriate with the attractive entry at $18, as upside depends on broader operational improvements beyond any single brand's performance.