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Bear of the Day: Mattel Inc. (MAT)


Mattel Inc. (MAT), a Zacks Rank #5 (Strong Sell) is the worldwide leader in the design, manufacture and marketing of toys and family products. The Mattel family is comprised of such best-selling brands as Barbie, the most popular fashion doll ever introduced, Hot Wheels, Matchbox, American Girl, Radica and Hot Wheels RC, as well as Fisher-Price brands, including Thomas & Friends, Little People, Power Wheels and a wide array of entertainment-inspired toy lines.

Recent Earnings Data

The company recently reported Q4 earnings where they significantly missed both the Zacks consensus earnings and revenue estimates. Further, the report also showed that quarterly net sales fell by -12%, and gross margins declined by -8% on a year over year basis. Specifically, gross margins saw a big dip, falling to 32% vs. 47% in Q4 16. On a regional basis, North American sales dropped by -17%, and gross sales fell by -16% YoY. Management cited tighter retail inventory, certain underperforming brands, and the Toys “R” Us bankruptcy filing as the reasons for the decline. On the International side, net sales dropped by -9% while gross sales fell by -1% in constant currency. The reasons given for the international decline were higher freight and logistics expenses, and unfavorable product mix.

Future Outlook

While the holiday season results were disappointing, management is attempting to turn the company around. Mattel can continued to build on two successful areas; the Barbie brand that saw shipments increases by 9%, and the company’s overall improvement in its inventory retail position. Further, management is currently accelerating its cost reduction efforts. But the issue of visibility remains, so it is not clear when and how successful its turnaround plan will positively impact both the top and bottom lines.

Management’s Take

According to Margo Georgiadis, CEO, “We have taken aggressive action to enter 2018 with a clean slate so that we can reset our economic model and rapidly improve profitability. We are optimistic about stabilizing revenue in 2018 anchored by our key power brands, entertainment partnerships and exciting new launches. We continue to gain momentum toward the medium-term goals we shared at our June Investor Day.”

Price and Earnings Consensus Graph

As you can see in the graph below the stock price has been falling since the beginning of 2017, and future earnings estimates have declined as well.

Mattel, Inc. Price and Consensus

Mattel, Inc. Price and Consensus | Mattel, Inc. Quote

Declining Earnings Estimates

Over the past 30 days, earnings estimates for Q1 18, Q2 18, FY 18, and FY 19 have all seen negative estimate revisions; Q1 18 fell from -$0.29 to -$0.34, Q2 18 slipped from -$0.10 to -$0.14, FY 18 was cut from $0.43 to $0.13, and FY 19 declined from $0.90 to $0.62.

If you are inclined to invest in the Toy/Games/Hobby sector you would be best served by looking into Nintendo Co. (NTDOY) as it currently carries a Zacks Rank #1 (Strong Buy) rating.

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