Mattel, Inc. MAT is poised to benefit from strong product line-up, promotional initiatives, cost-saving efforts and solid North America sales. Moreover, continued investments in Hot Wheels as well as foraying into other consumer product categories bode well for the company.
Notably, shares of Mattel have outperformed the industry in the past three months. The stock has gained 32.4% compared with the Zacks Toys - Games – Hobbies industry’s 17.8% growth.
Factors Driving Growth
Mattel remains well positioned for growth on the back of a strong product line-up, which primarily includes core brands, licensed brands and lucrative product associations. Moreover, its foray into other consumer product categories, such as apparel, fashion and accessories, bodes well. Also, continued strategic investments with respect to Hot Wheels are likely to benefit the company, going forward.
Notably, the company has been making efforts and focusing on better execution of marketing and promotional initiatives to revive its flagship brands — Barbie and Fisher-Price. In fact, the company has formed a brand development framework to unlock the scale and profitability of its brands and modernize them for the digital world. Markedly, the company is making significant progress to transform Mattel into an IP-driven high-performing toy company.
Nonetheless, Mattel is also focusing on cost-saving efforts to boost the bottom line. Through its current cost-saving program, the company is focused on expanding margins. Notably, it is simplifying its organization structure and optimizing processes and supply chain to generate savings across operations. For 2020, Mattel targets gross margin growth of 150-200 basis points, primarily backed by a structural simplification program and incremental savings from its capital light program.
Although the company’s total sales declined in the second quarter due to the pandemic, it surpassed the company’s expectations. Notably, the company witnessed sales growth in North America Barbie and games. Also, e-commerce point of sales increased sharply in North America. Gross sales in the region increased 3% year over year. This can primarily be attributed to increased sales in Dolls and Action Figures, Building Sets, Games, and Other (including Star Wars The Child plush and card games, including UNO, partially overshadowed by Toy Story 4). This increase was partially offset by a decrease in Vehicles and Infant, Toddler and Preschool.
In second-quarter, the Barbie brand witnessed an improvement of 7% on a reported basis and 10% on a constant-currency basis. In the Doll category, POS was up double digits, courtesy of robust demand for Barbie, which improved more than 35%.
Moreover, the company possesses enough liquidity to survive the coronavirus pandemic for some time. As of Jun 30, 2020, the company had a-$2.9 billion debt, almost flat sequentially. The company ended the quarter with cash and cash equivalents of $461.6 million compared with $499.4 at the end of first-quarter 2020. Although the company’s cash is quite low in comparison to its debt, it has no debt maturing until March 2023. The company also has access to $1.6 billion senior secured revolving credit facilities. Nonetheless, at the end of second-quarter 2020, the company had a debt-to-capital ratio of 0.9, which indicates manageable debt levels.
Zacks Rank & Other Key Picks
Mattel currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other top-ranked stocks in the Zacks Consumer Discretionary sector include TEGNA Inc. TGNA, Electronic Arts Inc. EA and Activision Blizzard, Inc. ATVI. TEGNA sports a Zacks Rank #1, while Electronic Arts and Activision Blizzard carry a Zacks Rank #2.
TEGNA’s 2020 earnings are expected to surge 36.2%.
Electronic Arts has a trailing four-quarter earnings surprise of 31.6%, on average.
Activision Blizzard has a three-five-year earnings per share growth rate of 17.3%.
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