Shares of Mattel (NASDAQ:MAT), Inc. MAT have gained 15.6% so far this year, against the industry’s decline of 22.5%. Strong demand for its products, efficient supply chain, robust North America sales and Barbie brand growth bode well. However, increased expenses, coronavirus woes and high debt remain concerns. Let’s delve deeper.
Growth Drivers
Given a strong product line-up that includes core brands, licensed brands and lucrative product associations, Mattel remains well-positioned for growth. During third-quarter 2021, the company benefited from robust demand for its consumer products. Net sales during the quarter increased 8% year over year on a reported basis. This marks the fifth straight quarter of year-over-year net sales growth. Gross billings during the quarter climbed 8% year over year and were up 18% compared with the third quarter of 2019. The company’s performances were driven by robust growth in the United States, North America, EMEA and Latin America, which offset temporary retail closures in several countries in the Asia Pacific. Per NPD Group, Mattel outpaced the industry with global market share gains for the fifth consecutive quarter.
With brick-and-mortar stores open in most of the markets, consumers have resumed in-person shopping, particularly in regions with lower e-commerce penetration. Having said that, the importance of online retail and e-commerce platforms cannot be ruled out as e-commerce POS accounted for more than 25% of its total POS during third-quarter 2021. Mattel’s POS grew double digits for the fifth straight quarter. Meanwhile, it has been undertaking efforts on the digital front and focusing on better execution of marketing and promotional initiatives.
The Zacks Rank #3 (Hold) company is benefiting from robust North America sales. During the third quarter, North America segment gross billings increased 12% (as reported) and 11% (at constant currency) year over year. This can primarily be attributed to an increase in sales in Action Figures, Building Sets, Games, and Other (including Jurassic World, Masters of the Universe, WWE, Plush, and MEGA), Vehicles (including Hot Wheels), Dolls (including Barbie, Spirit, and Polly Pocket), and Infant, Toddler, and Preschool (including Fisher-Price and Thomas & Friends).
Barbie brand continues to instill investor confidence with solid performance. In the third quarter, Barbie brand’s worldwide gross billings witnessed an improvement of 4% on a reported basis and 3% at cc. Barbie point of sales increased 3%. The upside can primarily be attributed to design-led innovation, cultural relevance, executional excellence and customers positive response to the brand. Per NPD, Barbie strengthened its position as the number one Global Doll brand in the third quarter of 2021.
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Concerns
Coronavirus pandemic continues to hurt the company’s performance in some parts of the world. In the Asia-Pacific region, 4% of stores representing 7% of the company’s revenues were closed. This coupled with the lower retail traffic hurt the results. The coronavirus pandemic and other macroeconomic uncertainties might negatively impact the company’s performance in the days ahead.
During the third quarter, cost inflation had a negative impact on the company’s operations. This was due to a rise in materials and logistics expenses. Going forward, the company expects cost inflation to be higher for the second half of 2021 due to the rise in ocean freight. During third-quarter 2021, adjusted gross margin contracted 280 basis points year over year to 47.8%, on account of input cost inflation, which was marginally offset by pricing. High debt remains a concern. The company’s long-term debt was $2,569.8 million as of Sep 30, 2021, lower than $2,852.8 million as of Sep 30, 2020.
Key Picks
Some better-ranked stocks in the Consumer Discretionary sector include JAKKS Pacific, Inc. JAKK, Bluegreen Vacations (NYSE:BXG) Holding Corporation BVH and Camping World Holdings (NYSE:CWH), Inc. CWH.
JAKKS Pacific sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 48.9%, on average. Shares of the company have soared 91.1% so far this year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for JAKKS Pacific’s current financial year sales and earnings per share suggests growth of 13.6% and 135.5%, respectively, from the year-ago period.
Bluegreen Vacations flaunts a Zacks Rank #1. The company has a trailing four-quarter earnings surprise of 695%, on average. Shares of the company have surged 35.5% in the past three months.
The Zacks Consensus Estimate for Bluegreen Vacations current financial year sales and earnings per share indicates growth of 27.5% and 199.3%, respectively, from the year-ago period.
Camping World carries a Zacks Rank #2 (Buy). The company has been benefiting from the launch of a new peer-to-peer RV rental marketplace and a mobile service marketplace. It has been investing heavily in product development.
Camping World has a trailing four-quarter earnings surprise of 70.9%, on average. Shares of the company have appreciated 5.4% in the past three months. The Zacks Consensus Estimate for CWH’s current financial year sales and earnings per share suggests growth of 25.9% and 77.6%, respectively, from the year-ago period.
5 Stocks Set to Double
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Mattel, Inc. (MAT): Free Stock Analysis Report
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