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Mattel (MAT) Down 2.3% Since Last Earnings Report: Can It Rebound?


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A month has gone by since the last earnings report for Mattel (MAT). Shares have lost about 2.3% in that time frame, underperforming the S&P 500 and the DJIA.

Will the recent negative trend continue leading up to its next earnings release, or is Mattel due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Mattel Posts Wider-Than-Expected Loss in Q2

Mattel incurred wider-than-expected loss in second-quarter 2018, lagging the Zacks Consensus Estimate for the seventh straight quarter. The company's sales also fell short of the consensus mark.

Adjusted loss of 56 cents per share was wider than the consensus estimate of loss of 32 cents. In the prior-year quarter, Mattel had incurred loss of 14 cents per share. The company's results were significantly affected by the Toys 'R' Us liquidation.

Per management, the Toys 'R' Us liquidation will continue to impact Mattel's performance in the near term. However, it is confident that the transformation plan will bring the company back on track. Notably, the company witnessed strong performance in Barbie and Hot Wheels brand in the quarter under review.

Sales Discussion

Net sales of $840.7 million lagged the consensus estimate of $863.1 million and declined 13.7% year over year. On a constant-currency basis, sales were down 15% from the prior-year quarter.

Worldwide gross sales were down 11% year over year as reported and at constant currency. In North America (including, the United States, Canada and American Girl), the metric declined 13%, both as reported and at constant currency, mainly due to lower sales as a result of Toys "R" Us liquidating operations. The decline was also caused by lower sales of CARS, Fisher-Price and Thomas & Friends, and Toy Box owned brands, partially offset by initial sales of Jurassic World and higher sales of Hot Wheels.

Meanwhile, in the International region, gross sales were down 5% as reported and in constant currency.

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 and in constant currency, worldwide gross sales at Mattel Power Brands decreased 2% to $619.4 million year over year. The Barbie brand witnessed 12% growth as reported driven by positive POS momentum. Gross sales at the Hot Wheels brand increased 21% on a reported basis and 22% in constant currency. However, gross sales at the Fisher-Price and Thomas & Friends brands decreased 14% as reported and 15% on a constant-currency basis, whereas the same at American Girl decreased 33% on a reported basis and constant currency basis.

Toy Box

In the second quarter, worldwide gross sales at Mattel Toy Box brands (Owned Brands and Partner Brands) came in at $334.7 million, down 23% as reported and in constant currency. The same at Owned Brands decreased 10% as reported and in constant currency on dismal sales of Monster High and MEGA, partially offset by Enchantimals sales. Meanwhile, the metric at Partner Brands decreased 32% both as reported and at constant currency due to a decline in sales at CARS, partially offset by initial sales at Jurassic World.

Operating Results

Gross margin of 30.1% contracted from 41% in the year-ago quarter, primarily due to higher materials costs, higher obsolescence and an unfavorable product mix.

Operating loss, as a percentage of net sales, increased 286% year over year as reported to 22.5%. At constant currency, the same was up 255%.

Net loss in the quarter was $240.9 million, reflecting a year-over-year decline of 217% as reported.

Balance Sheet

As of Jun 30, 2018, the company's cash and equivalents were $228.6 million compared with $275.4 million as of Jun 30, 2017. Total inventories decreased 23.6%.

The company's long-term debt was $2.8 billion as of Jun 30, 2018, higher than $1.9 billion as of Jun 30, 2017. Shareholder's equity was $664 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimate flatlined during the past month. The consensus estimate has shifted -21.48% due to these changes.

VGM Scores

Currently, Mattel has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

Mattel has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Earnings
Referenced Symbols: MAT



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