Mattel's Top Line Woes Continue - Analyst Blog

On Mar 27, 2014, we issued an updated research report on Mattel, Inc. MAT.

On Jan 31, this leading toy maker reported dismal fourth quarter results with earnings and revenue missing the Zacks Consensus Estimate. Also, both the parameters were down year over year.

Adjusted earnings of $1.07 per share declined 4.5% year over year and missed the Zacks Consensus Estimate of $1.20 by 10.8%. The downside reflects weak sales and higher advertising and promotion expenses.

During the quarter, net sales also declined 6.3% year over year to $2.11 billion, primarily reflecting poor performance in the domestic market. Sales of brands including Barbie and Fisher-Price dropped during the holiday season. Sales also missed the Zacks Consensus Estimate of $2.38 billion by 11.0%.

The sluggish performance reflects lingering consumer spending uncertainty amid sluggish economic growth in the U.S. with customers curbing their non-essential purchases. Due to the weak performance, estimates largely moved downwards over the last 60 days for both 2014 and 2015.

Although management claims that Mattel's inventory position is good and that the U.S. retail inventory is reducing gradually, we remain cautious till we find any definite signs of stabilization in the economy. The Euro zone debt crisis also remains a concern.

However, the company enjoys strong fundamentals like a solid product line-up, strategic associations with entertainment companies and expansion into emerging markets. Moreover, the company remains on track to achieve cumulative cost savings, which would enhance margins.

The company presently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the same industry include Glu Mobile, Inc. GLUU, JAKKS Pacific, Inc. JAKK and Take-Two Interactive Software Inc. TTWO. All these stocks carry a Zacks Rank #2 (Buy).