Mattel's (MAT) Q1 Earnings Miss, Sales Surpass Estimates

Mattel, Inc. (NASDAQ:MAT) 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.

In the past year, shares of the company have lost 32.7%, compared with the industry’s gain of 18.1%.

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.

Mattel currently has a Zacks Rank #4 (Sell).

Upcoming Releases

Red Rock Resorts, Inc. (NASDAQ:RRR) has an Earnings ESP of +1.37% and a Zacks Rank #3. The company is likely to report first-quarter results on May 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Wingstop (NASDAQ:WING) has an Earnings ESP of +3.80% and a Zacks Rank of 3. The company is slated to release first-quarter results on May 3, after market close.

Wendy’s (NASDAQ:WEN) has an Earnings ESP of +2.72% and a Zacks Rank #3. The company is scheduled to report first-quarter results on May 8, after market close.

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