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Mattel Declines 3% in 6 Months: Will Product Innovation Aid?

Zacks Equity Research

Mattel, Inc. MAT is aggressively trying to improve its point-of-sale systems and is managing costs while maintaining a few partnerships. The company is also exploring opportunities beyond the United States to drive sales.

However, declining sales trend, the lingering effects of Toys ‘R” US liquidation, high debt and competition from alternative modes of entertainment have been plaguing it for quite some time.

Resultantly, shares of Mattel have declined 3% over the past six months against the industry’s rally of 3.6%.

 

Let us delve deeper into factors that suggest that investors should hold the stock in their portfolio for the time being.

Key Brands Performing Well

Given a strong product lineup, which includes core brands, licensed brands and lucrative product associations; Mattel remains well positioned for growth. Owing to its popularity among boys and girls, the company’s premier brands like Hot Wheels have been the category leader in multiple product segments for several years. Continued investments in the brand are likely to make Hot Wheels more popular among kids.

To this end, Mattel partnered with Nintendo NTDOY to launch a new line of Hot Wheels Mario Kart die-cast vehicles and track sets.  Mattel also launched Hot Wheels id, which features Smart Track, Race Portal and Hot Wheels id vehicles.

In fact, in 2018, worldwide gross sales for Hot Wheels were up 9% and reached highest annual sales in its 50-year history. Global POS was also up by a high-single digit for the year. In the first quarter of 2019, gross sales at the Hot Wheels brand increased 4% on a reported basis and 9% in constant currency, courtesy of Hot Wheels' 50th anniversary.

Meanwhile, robust Barbie sales across all regions impressed investors. In 2018, gross Barbie sales were up 15% in constant currency. In North America and International segments, Barbie sales rose 19% and 12%, respectively, on a constant-currency basis in 2018. As a result of this performance, the NPD ranked Mattel as the topmost global toy company in 2018. Further, in the first quarter of 2019, gross Barbie sales were up 15% in constant currency.

Concerns

Mattel, like Hasbro HAS and JAKKS Pacific JAKK, is expected to keep shouldering the Toys ‘R’ Us liquidation effect in the near term. In fact, owing to the liquidation, Mattel’s net revenues in the first quarter of 2019 declined 3% year over year.

Moreover, the company’s long-term debt as of Mar 31, 2019, has been $2.9 billion. This, when coupled with declining sales, poses a major threat to its profitability.

Mattel currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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