Barbie, Star Wars In The Toy Sales Spotlight: Jefferies Previews Mattel, Hasbro Q4 Earnings

• Hasbro, Inc. HAS shares have declined 10.5 percent over the past six months, while those of Mattel, Inc. MAT have appreciated 16.85 percent over the same period.
• Jefferies’ Trevor Young has maintained a Hold rating on Hasbro, with a price target of $72, and a Buy rating on Mattel, with a price target of $30.
• With both companies scheduled to report their 4Q15 results in the beginning of February, Young mentioned that headline NPD data suggest accelerating growth in U.S. retail toy sales in 2H15, ahead of expectations.

Barbie Versus Star Wars

Analyst Trevor Young stated that Barbie and Fisher-Price would be the main focus for Mattel, given their declining sales in recent years.

Hasbro, on the other hand, is expected to have benefitted from $700 million in POS for Star Wars, although this might already been priced into the stock, given its strong performance year to date in 2016.

Related Link: Mattel Announces Extension Of Relationship With Disney For Upcoming "Cars" Movie

“With an est. ~$700 million in retail sales, Star Wars was the top property of 2015, likely benefitting HAS most, while MAT had four of the 10 top selling items, which bodes well for strong 4Q results from both,” according to the Jefferies report.

Mattel’s Metal

Following negative and worsening growth in its two core brands over the last two years, Mattel is expected to report re-acceleration for Fisher-Price during 4Q, with NPD data suggesting an improvement in infant/toddler/preschool toys in FY15.

Barbie, however, is expected to still be negative, driven by difficult comp headwinds. The Wheels business is expected to have witnessed CC growth in the high teens, with Vehicles being the second fastest growing category in 2015.

Young believes that “Mattel's stock is pricing in a dividend cut, so that 4Q's positive cash flow from operations will be critical in assessing the sustainability of the div,” while expecting the company to report is 4Q revenue and EPS only marginally below consensus.

Hasbro Is No Has-Been Either

“Strong Star Wars toy sales benefits Hasbro most, but gross margin growth may be slowing,” the Jefferies report noted.

After the "incredibly encouraging" Star Wars revenue for 3Q, which came in at the high-end of the guidance, this franchise is expected to be a focus in the 4Q results.

Although Young believes that while there have been positive benefits since 1Q, the 4Q expectations for the franchise might be too optimistic.

“GM is also likely to be in focus as it has grown an average of +210bps over the last four quarters, and although expectations are for further GM improvement, a slowdown in margin growth may validate worries about margins peaking,” Young added.

The company is expected to report its 4Q15 revenue marginally below consensus, with in-line EPS.