Mattel Reports Q1 Loss on Weak Sales - Analyst Blog

Mattel Inc. MAT reported first-quarter 2014 loss of 3 cents per share which compared unfavorably with the prior-year quarter earnings of 11 cents as well as the Zacks Consensus Estimate of earnings of 8 cents. The downside reflects weak sales.  
   
During the quarter, net sales declined 5.0% year over year to $946.2 million, primarily reflecting poor performance in the domestic as well as international market. Sales of brands including Barbie and Fisher-Price dropped during the quarter. Sales also missed the Zacks Consensus Estimate of $955.0 million by 0.9%.

Quarter Highlights

Gross sales from North America (including the U.S., Canada and American Girl) were down 2.0% year over year. For the International Region, gross sales decreased 7%.

Mattel's product segments comprise Mattel Girls & Boys Brands, Fisher-Price Brands and American Girl Brands.

Worldwide gross sales at Mattel Girls & Boys Brands declined 5.0% year over year to $656.9 million. Worldwide gross sales of the Barbie brand declined 14.0%, whereas gross sales of the Other Girls Brands improved 4.0%, thanks to Disney Princess and Ever After High, partly offset by Monster High. Gross sales of the Wheels category declined 2.0% while the Entertainment business dipped 8.0% due to lower sales of Radica and Games.

Sales at Fisher-Price Brands, which includes Fisher-Price Core, Fisher-Price Friends and Power Wheels brands, declined 6.0% year over year to $271.4 million.

Gross sales at American Girl Brands were up 5.0% year over year to $105.9 million.

Gross margin was down 330 basis points (bps) to 50.9%, driven by a rise in cost of sales. Operating margin declined 590 bps year over year to 0.7%.

Our Take

Mattel's top and bottom lines failed to beat our expectations during the reported quarter due to weak consumer spending. The sluggish performance reflects that consumer spending uncertainty still lingers amid sluggish economic growth in the U.S. as customers curb their non-essential purchases.

However, we remain positive about the company's acquisition of the Canadian toymaker Mega Brands in March, this year. The acquisition would help Mattel to expand in two of the fastest-growing toy categories — construction building sets and arts & crafts categories

The company presently has a Zacks Rank #2 (Buy). Other toy makers such as Hasbro Inc. HAS will report its first quarter earnings on Apr 21, while JAKKS Pacific, Inc. JAKK is slated to report on Apr 23. Another gaming company Glu Mobile, Inc. GLUU will report its earnings on Apr 30.