Toy stock to watch: Mattel, Inc.(NASDAQ: MAT)

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Mattel, Inc.(NASDAQ: MAT) stock generated an outstanding rally of over 20.7% on November 13th, 2017 (Source: Google finance) as Hasbro made an offer to the firm.

The shares of Mattel has been under pressure this year, which lost over 47% in this year to date (as of November 13th, 2017; Source: ASX) as the group has been facing pressure to generate sales growth. Moreover, the rising competition from cheaper off-shore imported toys, as well as the rising preference for gadgets by kids have been hurting the toymakers performance.

For the third quarter of 2017, Mattel’s worldwide net sales fell 13% as reported, while worldwide gross sales fell 13% as reported, and lost 15% on a constant currency basis. Toys “R” Us filing for bankruptcy was the major contributor to the weak performance of topline. Moreover, the tighter retailer inventory management coupled with certain underperforming brands hurt the quarter performance. Consequently, Mattel delivered a loss per share of $1.75, hurt by a non-cash charge related to a valuation allowance on U.S. deferred tax assets of $561.9 million, and adjusted earnings per share was $0.09. They also suspended quarterly dividend starting from the fourth quarter of 2017 to improve their financial flexibility.

Worldwide gross sales for Mattel Girls & Boys Brands fell 9% yoy to $967.0 million, during the third quarter of 2017 while worldwide gross sales for Fisher-Price Brands, which includes the Fisher-Price Core, Fisher-Price Friends and Power Wheels® brands, fell 15% yoy to $561.6 million. Worldwide gross sales for American Girl Brands, lost 30% yoy to $88.0 million.

Given this challenging performance, the group undertook initiatives to structurally simplify business and right-size cost structure in alignment with strategy. They are targeting to cut costs of at least $650 million in net costs over the next two years.

Although there was no official confirmation from either Hasbro or Mattel regarding the deal, investors cheered the possibility of the merger which leads to an outstanding Mattel stock rally yesterday. Gerrick Johnson, from BMO Capital Markets expects Mattel brands and their manufacturing footprint to be worth of more than $10 billion in their current state.

 

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