Why Is Mattel (MAT) Up 7.9% Since Its Last Earnings Report?

A month has gone by since the last earnings report for Mattel, Inc. MAT. Shares have added about 7.9% in that time frame.

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

Mattel's Q1 Earnings Miss, Sales Surpass Estimates

Mattel incurred wider-than-expected loss in first-quarter 2018, lagging the Zacks Consensus Estimate for the sixth straight quarter. However, the company’s sales surpassed the consensus mark after missing in the preceding five quarters.

Adjusted loss of 60 cents per share was wider than the consensus estimate of loss of 39 cents. In the prior-year quarter, Mattel had incurred loss of 32 cents per share. The company’s results were significantly affected by the Toys ‘R’ Us bankruptcy.

Per management, the Toys ‘R’ Us bankruptcy will continue to impact Mattel’s performance in the near term. However, it is confident that its transformation plan might bring the company back on track.

Sales Discussion

Net sales of $708.4 million outpaced the consensus estimate of $687 million but declined 3.7% year over year. On a constant-currency basis, the same was down 7% from the prior- year quarter.

Worldwide gross sales were down 2% year over year (as reported) and 5% at constant currency. In North America (including, the United States, Canada and American Girl) the metric declined 4%, both as reported and at constant currency, mainly due to lower sales as a result of Toys "R" Us filing for bankruptcy. The decline was marginally overshadowed by increase in sales of Barbie and Hot Wheels.

Meanwhile, in International region, gross sales were up 5% as reported (down 3% on a constant-currency basis), primarily driven by strong performances of Barbie and Hot Wheels.

Brand-Wise Worldwide Sales

Mattel, through its subsidiaries, sells a broad range of toy products that are grouped into four major categories — Mattel Girls & Boys Brands, Fisher-Price Brands, American Girl Brands, and Construction and Arts & Crafts Brands.

Power Brands

As reported, worldwide gross sales at Mattel Power Brands increased 2% to $552.9 million year over year (down 1% on a constant-currency basis). Barbie brand witnessed a 24% growth as reported (up 18% in constant currency) driven by new product lines and positive POS momentum. Gross sales at the Hot Wheels brand increased 15% on a reported basis and 11% in constant currency. However, gross sales at the Fisher-Price and Thomas & Friends brands decreased 8% as reported and 12% on constant-currency basis, whereas the same at the American Girl brand decreased 21% on reported basis and 22% in constant currency.

Toy Box

In the first quarter, worldwide gross sales at Mattel Toy Box brands (Owned Brands and Partner Brands) came in at $247.2 million, down 10% as reported and 14% in constant currency. The same at Owned Brands decreased 6% as reported and down 10% in constant currency on dismal sales of Monster High and MEGA. Meanwhile, the metric at Partner Brands decreased 4% as reported and down 17% in constant currency due to decline in sales at vehicles and DC Super Hero Girls.

Operating Results

Gross margin of 30.9% contracted 21% from the year-ago quarter as reported and 26% at constant currency.

Operating loss, as a percentage of net sales, increased 120% year over year as reported to 39%. At constant currency, the same was up 121%.

Net loss in the quarter was $311.3 million, reflecting a year-over-year decline of 175% as reported.

Balance Sheet

As of Mar 31, 2018, the company’s cash and equivalents were $526.7 million compared with $381.9 million as of Mar 31, 2017. Total inventories decreased 12%.

The company’s long-term debt was $2.9 billion as of Mar 31, 2018, up from $1.9 billion as of Mar 31, 2017.

Shareholder’s equity was $982.5 million and the debt-to-total capital ratio was 74.5% in the quarter ending Mar 31, 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been six revisions lower for the current quarter.

Mattel, Inc. Price and Consensus

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

VGM Scores

Currently, MAT has a poor Growth Score of F, however its Momentum is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile 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.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

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

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