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Mattel (MAT) Reports Narrower-Than-Expected Loss in Q1

Zacks Equity Research

Mattel, Inc. MAT has reported better-than-expected first-quarter 2019 results, wherein the bottom line surpassed the Zacks Consensus Estimate for three straight quarters. Also, the top line surpassed the consensus estimate for the second consecutive quarter.

The company reported adjusted loss of 44 cents, which was narrower than the Zacks Consensus Estimate of loss of 56 cents. The first quarter’s loss compared favorably with the prior-year quarter’s loss of 85 cents.

Sales Discussion

Net sales of $689.2 million surpassed the consensus estimate of $636.7 million but declined 3% year over year. This underperformance can be attributed to the Toys ‘R’ Us liquidation and slowdown in China operation. On a constant-currency basis, sales increased 1% from the prior-year quarter.

Worldwide gross sales were down 2% year over year as reported and increased 2% at constant currency. In North America (including the United States, Canada and American Girl), the metric increased 6%, both as reported and in constant currency.On a reported basis, net sales from the same region increased 5% year over year.

Meanwhile, in the International region, gross sales declined 5% as reported due to a decline in Infant/Toddler/Preschool (including Fisher-Price and Thomas & Friends), and Vehicles (including lower sales for CARS),  partially offset by increased sales for Hot Wheels. Gross sales, however, increased 4% in constant currency, driven by growth in Dolls (including Barbie and Polly Pocket), Action Figures/Building Sets/Games (including Jurassic World and Toy Story 4), and Vehicles (including increased sales for Hot Wheels), partially offset by lower sales for CARS.

Mattel, Inc. Price, Consensus and EPS Surprise


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

Brand-Wise Worldwide Sales

Mattel, through the subsidiaries, sells a broad range of toys. These items are grouped under four major categories — Mattel Girls & Boys Brands, Fisher-Price Brands, American Girl Brands, and Construction and Arts & Crafts Brands.

As reported, worldwide gross sales at Mattel Power Brands decreased 2% to $780.1 million year over year. The metric increased 2% on a constant-currency basis. On the flip side, the Barbie brand witnessed 7% growth as reported and 13% in constant currency, owing to positive POS momentum. Also, gross sales at the Hot Wheels brand increased 4% on a reported basis and 9% in constant currency, courtesy of Hot Wheels' 50th anniversary. At the Fisher-Price and Thomas & Friends brands, gross sales were down 8% as reported and 5% in constant currency. The same at American Girl decreased 32% as reported and in constant currency.

Operating Results

Adjusted gross margin expanded to 38% from 31.3% in the year-ago quarter, buoyed by Structural Simplification savings and benefit of the absence of the first-quarter 2018 Toys "R" Us net sales reversal. The adjusted gross margins were partially offset by product cost inflation and expenses related to the voluntary product recall.

Adjusted other selling and administrative expenses decreased 27% to $292.6 million.The improvements were primarily driven by the benefit of the absence of first-quarter 2018 Toys "R" Us bad debt expenses and savings from the Structural Simplification program.

Balance Sheet

As of Dec 31, 2018, the company’s cash and equivalents were $380.1 million compared with $594.5 million as of Dec 31, 2018. Total inventories as of the end of the first quarterincreased 13.4% year over year.

The company’s long-term debt summed $2.853 billion as of Mar 31, 2017, lower than $2.851 billion as of Dec 31, 2018. Shareholder’s equity was $518.5 million.

Zacks Rank & Stocks to Consider

Mattel currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the industry are Hasbro HAS, JAKKS Pacific JAKK and Electronic Arts EA. While Electronic Arts currently sports a Zacks Rank #1 (Strong Buy), Hasbro and JAKKS Pacific carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Hasbro and JAKKS Pacific’s earnings for the current year are expected to grow 12.2% and 77.6%, respectively. Electronic Art’s earnings for the next year are expected to increase14%.

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