Walmart and Target are cutting back for the holidays. That's bad news for Mattel

Barbie’s world just got a little less sparkly. Third-quarter results from parent company Mattel show the toy giant is feeling the pinch as it heads into the holiday season amid rising inventories and declining sales.

For toy companies, the quarter just preceding the all-important holiday season functions as a preview — with Walmart and Target revealing their holiday sales estimates through their ordering patterns. If the giant retailers expect a big Christmas, they place large third-quarter orders. If they’re feeling more cautious, well, it shows up as a lag in Mattel’s results like we’re seeing now.

Sales down, margins down, inventory up

The House of Barbie and Hot Wheels on Tuesday reported net sales of $1.74 billion, down 6% from a year ago. Adjusted gross margins fell almost 3 full percentage points, to 50.2%, or just above Mattel’s 50%+ target. Adjusted operating income slid by more than $100 million, and earnings per share dropped 22%.

There were bright spots, with Hot Wheels sales up 6% and action figures up 9%, thanks to franchises like Minecraft and Masters of the Universe. But dolls — Mattel’s biggest category — fell 12%, led by a double-digit decline in Barbie. Fisher-Price and preschool lines also plunged 26%.

Mattel CEO Ynon Kreiz cited “industry-wide shifts in retailer ordering patterns” as the reason for the drop, a signal that Walmart and Target are ordering later and more cautiously than usual. Instead of placing large direct orders from factories months in advance — which would have counted toward Mattel’s third-quarter sales — retailers are instead waiting to restock domestically and closer to the holidays, when demand is clearer.

Such a pattern pushes revenue into the fourth quarter and leaves Mattel carrying more inventory ($827 million worth of inventory, to be precise, up from $737 million a year ago) — and thus more a little more risk. It’s a way for retailers to protect themselves from being stuck with unsold toys if spending slows. It can also be a way that retailers try to insulate themselves from tariff-related price swings.

In fact, Mattel faced similar whiplash during Trump’s first-term trade wars, when retailers delayed toy orders amid shifting tariff policy — causing the same kind of quarter-to-quarter swings now reappearing in 2025.

Mattel’s tariff exposure remains more troublesome than most

A large portion of Mattel’s U.S. inventory still comes from China, now subject to a range of duties. Kreiz said earlier this year that the company would raise prices “where necessary” and accelerate its manufacturing shift elsewhere in Asia to cut that exposure. But the toy business remains necessarily tied to Chinese manufacturing and components — the nature of the game.

Still, Kreiz struck an upbeat tone about the months ahead, saying orders from U.S. retailers have “accelerated significantly” since the start of the fourth quarter. He pointed to rising point-of-sale data — meaning toys are selling through once they hit shelves — as evidence that underlying demand remains strong despite chaotic trade policy. Kreiz said Mattel expects a late order surge to translate into “a good holiday season and strong top-line growth in the fourth quarter.”

But at least as of Wednesday morning, investors aren’t buying that story. Shares of Mattel fell about 6% in pre-market trading.