Mattel, Inc. (NASDAQ:MAT) has been struggling and even losing revenue despite the industry witnessing an uptrend in the past. That can be seen from the way its privately-held rival, Lego, has been performing. If the stock is witnessing sluggishness, it is because of the none-too-impressive performance from the company. For instance, the publicly held firm’s sales witnessed a drop in sales in the first two quarters of the current year. However, its rival, Lego, reported a 30% jump in sales. Its poor performance also reflected in the top twenty holiday toys. While it was able to see only three toys making their way to the list, Hasbro, Inc. (NASDAQ:NASDAQ:HAS) witnessed five toys making its way to the top twenty holiday toys. However, the underperformance, be it stock or sales, could be a thing of the past if their new alliance or events started producing results.
Industry Performance
Mattel is a laggard in the toy industry that has been growing as the licensed toys are continuing to make healthy progress with the possibility of extending in the upcoming years too. The makers of toys are launching several licensed toys of familiar film franchises to get a bigger share of the market. Obviously, this factor has heightened the competitive environment in the toy industry. NPD, a research firm’s findings said that the toy industry’s retail sales witnessed 4% growth in the United States, to reach $18 billion. Of that, the licensed toys were the biggest gainers by recording 7% sales uptick.
In the current year, toy sales have already recorded 7.3% growth, fueled by strong sales of Paw Patrol, Shopkins, and Minecraft, apart from Disney Frozen. NPD Group’s SVP of the toys division, Juli Lennett, said that the kind of sales performance suggest that the current year will be one of the best years for the industry in a decade. However, the year cannot be a good one for Mattel. In the first half of the current year, the company suffered a 5% drop in sales. The toy maker also suffered a net loss of $69.5 million in the first six-month period of the current year. One of the reasons for the drop was the 16% drop in Barbie sales that hurt girls, as well as boys brands sales driving down 10%. That apart, there was a 14% fall in other brands of girls toys.
Will The Second Half Be Better?
Now, the question is whether the second half of the current year will be better than the first one. The indications suggest positively for the company, though nothing dramatic can be expected in its performance. The optimism is due to the robust demand of some of the toys that included Avengers: Age of Ultron, Jurassic World, and other licensed toys. That apart, the most recently launched Minions will likely increase sales during the holiday season in the current year. Last year, Mattel suffered a 5.6% fall in sales during the holiday season. The company will try to erase the bad memory by focusing on improving its sales from Star Wars Hot Wheels. The industry will also likely close the year on an upbeat note.
New Partners Joining
A few months ago, DC Entertainment teamed up with Mattel and Warner Bros to unveil ‘DC Super Hero Girls.’ For its part, Mattel would launch its new action dolls line for release next spring season. That would be the first six-inch dolls developed specifically for girls in the age group of 6 – 12. The alliance, as well as the license, should help all the involved companies, particularly Mattel, to enhance girls division sales to a larger extent. The alliance would also enable the company to compete better with its rivals. Incidentally, Walt Disney Co. (NYSE:DIS) was leaving Mattel. Therefore, the alliance should compensate more than the loss of Disney leaving.
Women Prefers Mattel Brand
Recently, Piper Jaffray disclosed a finding of its survey of women. That indicated that Mattel still commanded confidence among women as they believe that the brand shows early signs of stabilization. The survey came on the back of a 25% drop in stock price to reach its lowest level after 2011. The brokerage’s analyst, Stephanie Wissink, said that the upcoming holiday season would be a critical performance point for regaining reach among baby, as well as preschool. The survey was conducted involving over 1,000 women that included moms.
The brokerage said that the survey indicated improving sentiment among moms in respect of Mattel brands. That included Barbie, Disney Princesses, and Fisher-Price. That should be a big boost to arrest the sliding stock price in the last one year. Significantly, Fisher-Price topped the preferred toy brand among the retailer. That is a first time in three surveys that the company’s toy reached the top level.
Secondly, there appears to be improved favorability of the Barbie brand, with 55% of moms viewing it positively. That meant a 7% growth from the spring season. Despite these positives, the analyst is not ready to boost the rating from Neutral, as well as the price target of $22 on the shares of the company.
Conclusion
It seems that the share price of Mattel has bottomed out as some of the data suggests. However, those data should reflect on the financial numbers to have more confidence in the stock, which is already providing a yield of 6.5%. There is no doubt that the upcoming holiday season would be a litmus test to prove its strength. That should allow the company to erase the past memory of its losing streak. Though there is an element of risk because of the past, the current price looks to be attractive due to recent events, as well as data.
Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.