Shares of Mattel Inc.MAT tanked almost 9% in afterhours trading yesterday after the company posted a wider-than-expected loss for the first quarter of 2016.
Earnings & Revenue Discussion
Mattel's adjusted loss per share of 13 cents was wider than both the Zacks Consensus Estimate and the year-ago quarter figure of 8 cents.
Adjusted loss excludes intangible asset amortization expense related to the Mega Brands, Fuhu and Sproutling; a loss due to currency devaluation in Venezuela; and severance expenses.
Revenues of $869.4 million slipped 2% year over year in constant currency but beat the consensus mark of $855 million by 1.7%. Sales declined 6% year over year including the impact of foreign currency.
Gross sales fell 6% year over year due to a decline at Mattel Girls & Boys Brands and American Girl Brands. On a constant currency basis, gross sales were down 1%.
Gross sales of North America (including the U.S., Canada and American Girl) were down 2%, while that in the International region tumbled 11% mainly due to currency headwinds. However, on a constant currency basis, gross sales in both the North America and International region dipped 1% year over year.
Adjusted operating loss was $36 million, wider than the year-ago loss of $14.6 million, primarily due to lower revenues.
The company reports results under four segments, namely Mattel Girls & Boys Brands, Fisher-Price Brands, American Girl Brands, and Construction and Arts & Crafts Brands.
On a constant currency basis, worldwide gross sales at Mattel Girls & Boys Brands declined 8% to $527.9 million year over year on the back of a 58% plunge in the Other Girls brand. Barbie sales in constant currency remained flat. These were partly offset by a 9% increase in the Wheels category and 36% growth in the Entertainment business.
Gross sales at Fisher-Price Brands, which includes Fisher-Price Core, Fisher-Price Friends and Power Wheels, climbed 9% year over year to $272.6 million in constant currency.
Gross sales at American Girl Brands were $93.3 million, down 11% from the year-ago period on a constant currency basis.
Gross sales at Construction and Arts & Crafts Brands, which includes the Mega Bloks and RoseArt brands, were $61.9 million, up 78% from first-quarter 2015 in constant currency.
Second-Quarter 2016 Guidance
Mattel expects gross sales to more or less flat sequentially on a constant currency basis. The gross margin rate is also expected to be roughly flat as the first quarter, with supply chains efficiencies and cost savings partially offsetting foreign exchange headwinds.
Adjusted SG&A expenses will decline due to the company's cost-saving initiatives. However, the year-over-year drop will be less than the first quarter due to the full quarter addition of Fuhu SG&A expenses.
Gross margin is expected to be about 50%, almost flat year over year.
For the second half of the year, management expects the impact of foreign exchange to lessen as seasonal revenues will be significantly higher.
The company expects adjusted SG&A to decline by $55-$65 million. The company anticipates continuing cost savings to mitigate overhead expenses from the Fuhu and Sproutling acquisitions.
Mattel presently has a Zacks Rank #2 (Buy).
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