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Mattel (MAT) Q1 Earnings to Suffer From Top-Line Pressure

Zacks Equity Research

Mattel, Inc. MAT is scheduled to report first-quarter 2019 financial numbers on Apr 25, after the market closes.

Not exempting the fate of all traditional toymakers, the company is facing a dearth of consumer demand for quite some time now. Notably, Mattel has recorded dismal sales over the past few quarters due to the Toys ‘R’ Us liquidation and this trend is likely to have continued in the first quarter of 2019. Also, earnings may have been affected in the to-be-reported quarter despite the company’s cost-saving initiatives.

Notably, shares of Mattel have lost 9.4% over the past year compared with the industry’s 21.6% decline.


Let us see how the company’s top and bottom lines will shape up in the first quarter.

Top Line to Continue Declining

After the Toys “R” Us liquidation, Mattel has been witnessing a sales slump across the majority of brands. In fact, the company’s net revenues in 2018 declined 8% year over year primarily due to the liquidation. We believe that the effect of this liquidation lingered further in the first quarter as Toys “R” Us was the last major chain, fully dedicated to selling toys. Subsequently, the Zacks Consensus Estimate for total revenues in the first quarter is pegged at $636.7 million, marking 10.1% fall from the year-ago quarter’s reported figure.

Meanwhile, the lack of innovative schemes for brand awareness and brand innovation has been hurting Mattel’s top line. Though overall POS has been mostly positive, owing to the company’s efforts to lower retail inventories, the improvement is not significant, which may have further dented first-quarter sales.

The Zacks Consensus Estimate for International gross revenues in the first quarter is pegged at $364 million, reflecting a 54.8% decline from the last reported quarter. Despite relying heavily on a growing pipeline of tech-enabled products that capitalize on new play patterns, the company has been unable to revive sales in the to-be-reported quarter.

How Will Earnings Shape Up?

Despite focusing on achieving cumulative cost savings, Mattel may not have been able to navigate the greater top-line pressure in the first quarter. In 2018, the company’s gross profit declined 1% and is likely to have declined in the first quarter as well.

Consequently, the consensus estimate for revenues is pegged at loss of 56 cents for the to-be-reported quarter compared with the prior-year quarter’s reported loss of 60 cents.

What Does the Zacks Model Unveil?

Our proven model does not predict that Mattel is likely to beat estimates in the first quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Currently, Mattel has an Earnings ESP of -7.21% and a Zacks Rank #5 (Strong Sell). You can see the complete list of today’s Zacks #1 Rank stocks here.

We caution against stocks with a Zacks Rank #4 (Sell) or 5 going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Mattel, Inc. Price and EPS Surprise


Mattel, Inc. Price and EPS Surprise | Mattel, Inc. Quote

Stocks With Favorable Combinations

Here are a few stocks from the Consumer Discretionary sector that investors may consider as our model shows that these have the right combination of elements to post an earnings beat in the first quarter:

JAKKS Pacific JAKK has an Earnings ESP of +17.86% and it currently carries a Zacks Rank #2.

Wynn Resorts WYNN has an Earnings ESP of +1.78% and a Zacks Rank #3 at present.

Marriott MAR currently has an Earnings ESP of +0.90% and a Zacks Rank #3.

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Wynn Resorts, Limited (WYNN) : Free Stock Analysis Report
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