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Mattel (MAT) Up 20.1% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
·4 min read

A month has gone by since the last earnings report for Mattel (MAT). Shares have added about 20.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Mattel due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Mattel Misses Q1 Earnings & Revenue Estimates

Mattel reported first-quarter 2020 results, wherein both earnings and revenues missed the Zacks Consensus Estimate. In fact, revenues missed the consensus mark for the second straight quarter. Moreover, both the metrics declined sharply year over year. The company withdrew its previously announced guidance citing the coronavirus pandemic-induced crisis.

Decline in worldwide gross sales for Dolls, Infant, Toddler and Preschool and Action Figures, Building Sets and Games impacted the reported quarter’s results. 

The company reported adjusted loss per share of 56 cents, wider than the Zacks Consensus Estimate of a loss of 42 cents. In the prior-year quarter, the company had reported adjusted loss of 42 cents.

Sales Discussion

Net sales of $594 million missed the Zacks Consensus Estimate of $648 million and declined 14% year over year. On a constant-currency basis, sales fell 12% from the prior-year quarter.

In North America, gross sales were down 17%, both as reported and at constant currency. This can primarily be attributed to decrease in sales in Infant, Toddler and Preschool (including Fisher-Price and Thomas & Friends, and Fisher-Price Friends), Action Figures, Building Sets and Games (including Toy Story 4 and MEGA), and Dolls (including owned brands and Barbie). The decline was marginally offset by increase in sales at Vehicles, which include Hot Wheels.

In the International region, gross sales declined 11% (as reported), on account of decrease in sales in Infant, Toddler and Preschool (including Fisher-Price and Thomas & Friends, and Fisher-Price Friends), Dolls (including Barbie, marginally negated by increase in owned brands), and Action Figures, Building Sets and Games (including DC Comics and Jurassic World, partially offset by growth in UNO). Moreover, gross sales declined 8% in constant currency.

Brand-Wise Worldwide Sales

Mattel, through its subsidiaries, sells a broad range of toys. These items are grouped under different brands — Barbie, Hot Wheels, Fisher-Price and Thomas & Friends and Other.

As reported, worldwide gross sales at Mattel Power Brands were down 14% to $670 million year over year. The metric declined 12% on a constant-currency basis. Moreover, the Barbie brand witnessed a decline of 10% as reported and 8% in constant currency. Gross sales at the Hot Wheels brand improved 5% on a reported basis and 8% in constant currency. However, gross sales were down 25% as reported and 24% in constant currency at the Fisher-Price and Thomas & Friends brands. Gross sales at Other declined 20% as reported and 19% in constant currency.

Operating Results

Adjusted gross margin expanded 450 basis points to 43.5%, driven by savings from the Structural Simplification program and capital light. The company witnessed highest gross margin growth in the reported quarter since 2016.

Adjusted other selling and administrative expenses increased 9% to $314.9 million. The improvement can primarily be attributed to increase in incentive compensation expense and employee-related costs.

Balance Sheet

As of Mar 31, 2020, the company’s cash and equivalents were $499.4 million compared with $630 million as of Dec 31, 2019. Total inventories as of the end of the first quarter rose 13.1% year over year to $560.6 million.

The company’s long-term debt amounted to $2,848.9 million as of Mar 311, 2020, higher than $2,846.8 million as of Dec 31, 2019. Shareholder’s equity was $157.9 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -26.28% due to these changes.

VGM Scores

At this time, Mattel has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Mattel has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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